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SAN FRANCISCO, Apr 21 (Reuters) Microsoft Corp.'s antitrust battle in Europe threatens to snarl the release of the next version of Windows and has turned into a big distraction for executives that could spur more lawsuits, analysts and investors say.

Microsoft will ask a European appeals court on Monday to reverse a 2004 finding that the company abused its near-monopoly of its Windows operating system to muscle out rivals. That ruling also carried a record 497 million euros ($609.3 million) fine.

The case is part of a global legal fight by the world's biggest software maker against charges it has abused its dominant market position. A U.S. court found in 2001 that Microsoft violated antitrust laws, the company is appealing similar charges in South Korea and it has encountered trouble with regulators in Japan.

Kim Caughey, an equity analyst who helps manage nearly $1 billion in assets at Fort Pitt Capital Group, said she worries the European Union legal fight is distracting the company and its executives from more valuable work.

''I would have to say that I don't know how much it really affects the day-to-day operations, but it is a big deal for the company,'' Caughey said. ''They need to prove they can get along in other economies than the United States.'' Like other analysts, Caughey said the prospect of looming additional fines related to the case is not a major worry for the company, which has more than $30 billion in cash. She also believes Microsoft will find a way to settle.

But she warned the company could face similar legal challenges related to its much-anticipated Vista operating system, the next version of Windows, which is set for consumer release in January 2007. Other analysts also say the case could embolden more government agencies to sue Microsoft.

European Competition Commissioner Neelie Kroes has already expressed concern about the new operating system to Microsoft Chief Executive Steve Ballmer.

The Commission is concerned Vista may package Internet search functions or software to create fixed document formats, such as the ''pdf'' format, posing a threat to companies such as Google or Adobe that provide similar products.

''The question is will they have to replay this again with Vista,'' Caughey said. ''What other functions are you going to tell Microsoft they can't compete on?'' Many investors see the case as a long-term issue for the company and they have already priced this risk into a stock that has barely budged the past few years. Since the beginning of 2004, Microsoft shares have fallen 1.6 percent while the Nasdaq exchange has risen about 18 percent.

''It is a big deal but it is very hard to quantify what the impact could be on Microsoft,'' said Yun Kim, an analyst at AG Edwards.

The case before a special panel of the Court of First Instance will hear an appeal of the European Commission's finding that Microsoft's decision to put Windows Media Player on every computer running Windows unfairly competed against RealNetworks' Real Player and others.

The other violation under review next week involves the Commission's finding that Microsoft made certain its own work group server software ran better with desktop and laptop computers than that of rivals.

Microsoft says it has done nothing to hurt the market and Brussels's effort to enforce interoperability risks infringing its legitimate trade secrets.

The Court of First Instance, which could take up to a year to reach a decision, will have to determine whether to overturn or modify the Commission's ruling and fine.

Joe Wilcox, an analyst at Jupiter Research, believes Microsoft will reach a settlement and said dispatching the case can provide reassurance that Vista will have a smooth release in Europe and help the company avoid future lawsuits.

''Already the EU competition committee is setting its sights on Windows Vista, which isn't even released yet,'' he said.

Success for the EU in this case may make government agencies elsewhere, who have been getting complaints from Microsoft competitors, decide to sue, he said.

REUTERS CS BD1106

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