International Business Machines edged past old rival Microsoft Corp in market value for the first time since April 1996, marking the latest twist in the fluctuating fortunes of two of the world's most storied technology companies.

The move marks another unhappy milestone for Microsoft, which has failed to persuade investors that it can dominate the future of technology as it did in the past, and has seen its share price stagnate over the past decade.

An investor putting $100,000 into both stocks 10 years ago would now have about $143,000 in IBM stock and about $69,000 in Microsoft stock.

Microsoft is now the third-largest U.S. tech company by market value, after a resurgent Apple Inc roared past a year ago to take first place.

IBM ruled the computer industry for decades until it hired the tiny, unknown Microsoft to provide an operating system for its new range of personal computers in the early 1980s.

Bill Gates parlayed that breakthrough into industry dominance -- proving his theory that software would be more valuable than hardware -- so that by the end of 1999, Microsoft's market value was three times that of IBM's, and bigger than any other U.S. company.

Throughout Seattle-based Microsoft's rise, IBM was pilloried as an old-fashioned, immobile Goliath that could not keep up with the computing revolution. The Armonk, New York-based company known as Big Blue was losing billions of dollars a year in the early 1990s and was close to a break-up before a turnaround engineered by CEO Louis Gerstner.

Since the Internet technology bubble burst in 2000, the tables have been reversed. Despite more than doubling sales and profit in the last 10 years, Microsoft's stock has stalled, leading to criticism of CEO Steve Ballmer's 11 years at the helm.

Although it still dominates the operating system market, Microsoft lost out to Google Inc in the new market for Internet advertising, let Apple lead the way in smartphones and tablet computing, and is struggling to make an imprint on the popular web in the way of Facebook or Twitter.

In the meantime, IBM has refashioned itself as a specialist in business software, servers and consulting, jettisoning its PC business along the way, under the leadership of Sam Palmisano since 2002.

According to Reuters data, Apple's market value stood at $309.2 billion on Monday, IBM at $203.8 billion and Microsoft at $203.7 billion.

IBM is now ranked fourth in terms of market value in the United States, behind oil giant Exxon Mobil Corp at $397.4 billion, Apple, and industrial and finance conglomerate General Electric Co at $205.6 billion.

IBM shares ended down 1.1 percent at $168.26 while Microsoft fell 1.3 percent to $24.17.

(Additional reporting by David Gaffen and Rodrigo Campos in New York; Editing by Phil Berlowitz and Tim Dobbyn)

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