Linux Japan deal outflanks Microsoft

IN A blow to Microsoft, computer giant Fujitsu said today that it, IBM Japan and Oki Electric Industry have won a 188m yen (£1m) contract to design a

The Japanese government has relied on expensive mainframe computers for its backbone system and the adoption of Linux is expected to halve the network's operating costs to about 350 billion yen a year.

While the deal was too small to impress the markets with respect to Fujitsu, whose shares fell 2.51% to 621 yen, it was a different story for Oki, which rose 0.25% to 400 yen. Oki has announced an assault on Japan's competitive server marke t , dominated by Fujitsu with 20.5% market share. IBM has 18.9%. Server shipments in Japan are worth 770bn yen a year.

Overall, the market retreated from yesterday's gains, which took the Nikkei 225 briefly above 10,000. The index was down 0.4% but later rallied to close at 9990.95, up 92.23.

Some internet-related stocks continued their recent rises, but by and large attention moved on from tech stocks, NEC falling 3.17% to 795 yen after two positive days. Even so, the stock is approaching double its year-low of 333 yen in April.

Hanshin Electric Railway's fortunes rose, apparently on the back of a decisive win by the Osaka railway operator's baseball team which has opened an unassailable lead for the pennant this year. Its shares were up 9% at 436 yen.

Juki, the world's largest producer of industrial sewing machines, also rose as it reactivated plans, delayed by the Sars crisis, to start mass production of high-end sewing machines at its Shanghai plant this year. Its shares rose 1.93% to 360 yen.

In Seoul, shares drifted after reaching yesterday's seven-year high. The Kospi was down 3.04 points at 705.30, ending a six-day winning streak.

Samsung Electronics, which yesterday hit a 14-month high, was just 0.38% higher at 369 won, while steelmaker Posco lost 0.74% to 135,000 won.

In Singapore, the tech rally continued to fuel the market with the Straits Times index rising 11.54 points to 1530.49. Chartered Semiconductor Manufacturing added to recent gains after signing an agreement with Germany's Infineon Technologies. The stock was up 3.77% at S$1.10.

Defence contractor ST Engineering also rose after posting a 12% improvement in second-quarter net profit. The stock was up 0.56% to S$1.81. Investors were also cheered by comments by chief executive Tan Pheng Hock, who said the outlook at the company's aerospace division was improving.

In Malaysia, investors welcomed the news that conglomerate Renong had sold a 6.2% stake in financial group Commerce Asset-Holding for 594.1m ringgit (£95.5m) to help redeem as part of plans to dispose of non-core businesses. The shares were up 1.04% at 0.48 ringgit.

Central bank approval for the merger of Malaysia's third-largest banking group RHB Capital to begin merger talks with Allianz for its non-banking businesses lifted those shares 0.52% to 1.95 ringgit.

The Kuala Lumpur Composite index fell 3.37 points to 723.63.