European Union antitrust regulators launched an in-depth probe on Thursday into Oracle's $7 billion takeover of Sun Microsystems on concerns the deal could dent competition in the database market.

Sun shares fell 2 percent while Oracle shares were down 1.5 percent, as investors feared a regulatory delay could allow rivals -- including Hewlett-Packard Co and International Business Machines Corp -- more time to poach hardware customers.

The (European) Commission has an obligation to ensure that customers would not face reduced choice or higher prices as a result of this takeover, Competition Commissioner Neelie Kroes said in a statement.

The Commission, competition watchdog of the 27-country European Union, set a January 19, 2010 deadline for its decision, putting the world's No. 3 software maker, Oracle, months behind its original plan for closing the deal.

Analysts have said such a delay could hurt Sun, the No. 4 maker of computer servers. HP and IBM have already been offering discounts and other incentives to woo Sun customers since Oracle agreed to buy Sun in April, playing up concerns that Oracle might have trouble running a hardware maker.

Oracle had on August 20 received the green light from the U.S. Department of Justice for its takeover of Sun, developer of Java software, among the world's most widely used computer languages.

Christopher Thomas, a Brussels-based antitrust lawyer at law firm Lovells, said the Commission's in-depth probe showed it was more cautious than its U.S. counterparts but did not necessarily mean the deal would be derailed.

I would not read too much into the investigation. The Commission has different sets of documents than the U.S. authorities. I would imagine the issues are broadly the same, he said.

At this stage, it is too early to say if this is particularly bad news for the transaction itself though it will affect the timing of the transaction, added Thomas, who is advising companies on the deal.

The Commission said it was concerned that the open source nature of Sun's MySQL database might not eliminate fully the potential for anti-competitive effects.

With Oracle's databases and MySQL competing directly in many sectors of the database market, MySQL is widely expected to represent a greater competitive constraint as it becomes increasingly functional, the EU executive said.

Oracle, IBM and Microsoft are the main players in the proprietary database market.

Analysts have expressed doubts on whether Oracle's acquisition of MySQL would stifle competition in the $19 billion a year database market. Sun generates about $300 million in revenue from MySQL.

Oracle brought in about $9.2 billion in database sales last year, according to market researcher Gartner.

Sun shares were down 19 cents at $9.13, while Oracle shares were down 32 cents at $21.45 in midmorning trade. IBM shares traded a penny higher at $116.10 while HP shares rose 25 cents, or 0.6 percent, to $44.50.

(Additional reporting by Ritsuko Ando in New York, Editing by Dale Hudson and Matthew Lewis)

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