Microsoft and Ericsson also agreed to collaborate in supporting the development of open industry standards so products from all companies can work seamlessly together.

The Swedish company announced that it was setting up a joint venture with Microsoft to market "end-to-end solutions for the wireless internet" in the rapidly evolving high-tech and telecoms industries.

Ericsson said it would adapt Microsoft's mobile explorer for its mobile phones.

"The mobile internet is part of Ericsson's vision of convenient and user-friendly information access and wireless e-mail," Ericsson president Kurt Hellstroem said.

The new venture will use Bluetooth technology which is a wireless technology standard which links computers to peripherals like printers.

"Mobile internet access and services are crucial for realising Microsoft's vision" of delivering information through computer software to consumers anywhere in the world, Steve Ballmer, Microsoft president said.

There is a widespread belief that the next stage of the development of the internet will be its use in new generation mobile phones, allowing people to get e-mails and receive news flashes while on the move.

"We see it as very positive for the whole mobile dataspace industry - this partnership will drive mobile internet space providing easier and faster access," said Sherief Bakr of Merrill Lynch.

Fierce competition

There has been fierce competition and positioning to set the industry standards for the next generation of mobile phone and other products.

Microsoft's main competition has come from the Epoc operating system, designed by Psion and now being developed by the Symbian joint venture, in which Ericsson is a major partner, along with other mobile phone makers. Psion originally developed the system for its own hand-held computers and personal organisers.

The news of Microsoft's deal resulted in Psion share plummeting 40% from 3005.5p to 1800p, although they later recovered more than half that loss.

Ericsson said that it remained committed to the Symbian venture and Epoc despite the Microsoft deal.

Ericsson shares soared by 62 kroner to 550 kroner when dealing resumed after being suspended ahead of the announcement because of rumours sweeping the Swedish markets.

Details of the link-up had been due to be revealed at a joint press conference on Thursday.