Updated from 7:01 a.m. EST

Microsoft

(MSFT) - Get Report

shares surged 8% Thursday, reaching their highest level since early February, as the software giant and antitrust prosecutors bore mounting pressure to conclude settlement talks and investors bet on a nearby, and favorable, ending to the landmark case.

The settlement talks have reportedly intensified in the last week or so, with the two sides said to be discussing a deal that would severely restrict Microsoft's conduct but not break up the company. Moreover, the judge in the antitrust case is expected to issue a harsh ruling against Microsoft within weeks if a settlement is not reached.

Investors this week have seemed inclined to believe the Redmond, Wash.-based company will reach a settlement soon. Microsoft's shares have gained more than 11% so far this week, and they rose 8 5/8 Thursday to close at 111 7/8.

Reports that talks had accelerated appeared Thursday in both

The Wall Street Journal

and

The Washington Post

, which each cited unidentified people close to the discussions.

Gina Talamona, a spokeswoman for the

Justice Department

, said the reports should not be taken seriously. Jim Cullinan, a spokesman for Microsoft, said the DOJ planted the stories.

"We're disappointed that people are talking publicly about the process," Cullinan said. "The lack of attribution in this case has driven me absolutely crazy."

Talamona as well as representatives from several states' attorneys general offices said they do not comment on the case.

Still, analysts said a conclusion seems imminent, as changes in technology have made the Justice Department's case a legal anachronism and shifting political power balances have nibbled at prosecutors' bargaining power.

"What the DOJ is doing is simply acknowledging that they don't have the oomph to take the case to the end," said James Lucier, a legal and regulatory issues analyst for

Prudential Securities

. Lucier does not rate stocks and his firm has done no underwriting for Microsoft. "The movement toward a settlement is the law catching up with reality."

The timing and direction of the company's stock price movements have been punctuated for months by court filings, more so than by highly anticipated product releases like Windows 2000. Perhaps the most consequential filing, Judge Thomas Penfield Jackson's Conclusions of Law, is expected in early April. His verdict would likely treat the company harshly, given the scathing assessment of Microsoft's marketing practices contained in his preliminary ruling.

But a settlement could simply allow the Justice Department to save face if, as some analysts expect, it mandates nothing beyond controls on the company's marketing practices. The Redmond, Wash.-based company would then escape more ominous fates, including a breakup of the company.

As evidence of the accelerated pace of the settlement talks, both the

Journal

and the

Post

reported that Judge Jackson summoned lawyers for Microsoft, the Justice Department and 19 states to meet in his chambers on Tuesday. Pam Laborde, a spokeswoman for Attorney General Richard P. Ieyoub of Louisiana, and Christopher DeWitt, a spokesman for Attorney General Jennifer Granholm of Michigan, said lawyers from their states did not attend the meeting.

Private negotiations between Microsoft and the Justice Department began in the fall after Jackson named Richard Posner, of the

7th Circuit Court of Appeals

, to mediate the case. Posner, a widely respected antitrust scholar, has reportedly met individually with each of the parties, nudging them closer to agreement.

In the case, the government contends that Microsoft monopolizes the market for operating systems and employs predatory tactics to maintain and expand its monopoly.

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A settlement could include opening the Windows operating system source code for competitors to view while designing applications, accepting regulatory oversight or a combination of the two. One less likely but publicly discussed option could include splitting up the company, as it is perceived that any restrictions would be aimed at preventing Microsoft from wielding its influence over personal computer makers and software and Internet companies.

Microsoft would most likely benefit from a settlement, legal analysts say, because any ruling that the company is a predatory monopolist could be used against it in future civil and class action cases brought by customers or competitors.

The company has sought a political resolution, donating $417,350 in soft money, including $316,000 to

Republicans

, during the first three quarters of 1999, according to the

Center for Responsive Politics

. Microsoft's stock price last reached Thursday's levels on Feb. 9, the day the company sent an e-mail to members of

Congress

asking them to oppose a breakup.

Last month, the company won support across the political aisle as Sen. Robert Toricelli, a

Democrat

from New Jersey and chairman of the

Democratic Senatorial Campaign Committee

, sent Attorney General Janet Reno a letter condemning a breakup of Microsoft.

While some analysts said a settlement seems more likely than ever, speculation of an ending to the highly secretive talks has emerged repeatedly since November, prompting market players to swing the company's stock price back and forth across a tight 20-point playground. The stock did not break out of that range -- from the low 90s to the low 110s -- in Thursday morning trading.

Previous speculation about a pending settlement included a vaguely sourced

report in

USA Today

on Jan. 12,

rumors that emerged Dec. 14 from the options pit of the

Pacific Stock Exchange

and, more recently, comments that

Bloomberg News

attributed to Microsoft chairman William H. Gates after the introduction of the Windows 2000 operating system.

It is unclear whether the reports in the

Journal

and the

Post

point to a pending settlement, said Aaron Scott, an analyst for

Advest

who rates the stock a buy and whose firm has not done underwriting for Microsoft. But "it's always good for the share price," he said.