Shares on Wall Street have started the week higher, lifted by news of a settlement in Microsoft's long-running anti-trust dispute and by hopes for a US interest rate cut.

World markets close:

Dow Jones: Up 0.5% Nasdaq: Up 2.6% FTSE 100: Up 3.6% Cac 40: Up 3.5% Dax: Up 4.7%

The benchmark Dow Jones share index closed up 0.54%, down from higher levels during the trading day, while the tech-heavy Nasdaq closed up 2.61%, also off intraday highs.

Renewed concerns about a possible war with Iraq dented sentiment.

Technology shares posted the biggest gains, lifted by news late last week that a US court had endorsed a settlement between software giant Microsoft and anti-trust watchdogs without imposing tougher sanctions on the firm.

Microsoft was among the biggest gainers, rising 5.75% to close at $56.

Market sentiment was also buoyed by expectations that the Federal Reserve, the US central bank, would cut interest rates by a quarter of a percentage point on Wednesday in an effort to stimulate the flagging economy.

The rise in share prices reinforced hopes that a stock market recovery which began three weeks ago could develop into a sustained rally.

Europe soars

Wall Street's strong performance built on an earlier rally in Europe, where all the main stock markets also started week on a positive note.

London's benchmark FTSE 100 share index closed up 3.6% at 4,141.5 while in Paris the Cac 40 index of leading French shares closed up 3.5% at 3,218.67.

Frankfurt's Dax index gained about 4.7% up 154.3 at 3,319.4.

Financial and technology stocks led the increase in all three European markets.

In London, shares in insurance giant Royal & Sun Alliance bounced back from sharp falls on Friday when asbestos concerns hit the shares. Fuelling Monday's rise was speculation that the company has scrapped plans to raise money by issuing new shares.

News that a US court had endorsed Microsoft's anti-trust settlement without imposing tougher sanctions on the firm gave UK software companies a lift, with Logica and Sage climbing strongly.

Elsewhere, shares in GW Pharmaceuticals soared by amid reports that the firm had completed a round of successful tests on a new cannabis-based painkiller.

Completion of the tests would pave the way for the commercial launch of the new painkiller, which is expected to be used in the treatment of a range of serious illnesses.

Jet engine maker Rolls Royce was also higher on the back of better than expected results from budget carrier Ryanair.

Fed-watching

In Frankfurt, Deutsche Bank rose on reports of a possible bid for parts of its business from Dutch finance house NIB, while semiconductor maker Infineon also gained.

In France, tech stalwarts STMicroelectronics and Cap Gemini led the rally.

Also posting strong gains was Swiss tour operator Kuoni, which gained about 20% after reporting higher than expected pre-tax profits and delivering an upbeat outlook report for next year.

Traders in all European markets credited forecasts for a US rate cut for the new-found strength in share prices.

"Hopes that the Fed will cut rates is part of the equation," said a trader in Frankfurt.

Weaker than expected US consumer confidence and manufacturing data last week boosted the chances of a cut in borrowing costs when the Fed meets on Wednesday.

It would be the first change in US interest rates in almost a year.

Last year, the Fed cut borrowing costs to their current 40-year low of 1.75% in an effort to ward off recession, with the most recent cut coming in November 2001.