Microsoft Corp said on Monday it would disable the two primary methods used by software pirates to illegally copy Windows Vista software in the next major update of the operating system.

The world's largest software maker loses billions of dollars to software piracy every year. Microsoft said new features built into Vista are reducing piracy levels by half compared with its previous operating system, Windows XP.

Microsoft plans to improve that one step farther still with changes built into Windows Vista Service Pack 1, the first major update to the operating system, which is due out in the first quarter of 2008.

The company plans to close a loophole that let pirates mimic activation used by some computer manufacturers to install Vista. Microsoft also will clamp down on a method of extending a grace period time between installation and activation.

According to trade group Business Software Alliance, about 35 percent of the world's consumer software is pirated. Windows, which sits on more than 90 percent of the world's computers, accounts for the bulk of those pirated copies.

Many software pirates sell illegally copied versions on auction sites and some small computer manufacturers install pirated versions of Vista on PCs sold to unknowing victims.

Microsoft said it would also change how it deals with pirated versions of Vista, whose users will now get recurring notifications that their version of software is fraudulent with a link to buy a genuine copy. Currently, Microsoft shuts down features in Vista when it finds a pirated copy.

If a user of pirated software wants to purchase a genuine copy of Windows from Microsoft, they can do so for $89 for the Home Basic version or $119 for the Home Premium version.

Reducing piracy is considered one major way for the $51 billion software maker to spur growth in its dominant software franchises. The company said improvements in reducing piracy helped to spur a 25 percent rise in Windows sales in the September quarter.

Microsoft declined to estimate the financial impact of its new measures. The company had sold 88 million Vista licenses as of the end of September.

(Reporting by Daisuke Wakabayashi; Editing by Braden Reddall)

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