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Microsoft-AT&T deal may come this morning

Microsoft is likely to make a major announcement before the market opens, sources said, fueling speculation of a deal.

Microsoft is likely to make a major announcement this morning, sources said, fueling speculation that a deal between the software giant and AT&T could be at hand.

Sources said tonight that the announcement is set to occur before the stock market opens Thursday morning but declined to elaborate. They cautioned, however, that the situation was fluid.

In recent days, speculation has mounted that Microsoft was negotiating to invest up to $5 billion in AT&T. Reuters reported tonight that the two were close to reaching a deal.

The move would be intended to keep Microsoft in the thick of broadband developments. Tuesday, AT&T won a bidding war for MediaOne, and if the deal goes through, the phone giant will become the largest cable company in the nation.

Comcast, the No. 4 cable operator, opted not to counter AT&T's $54 billion cash-and-stock bid for MediaOne. AT&T and Comcast subsequently agreed to a side deal that swaps cable subscribers while providing AT&T with cash and giving Comcast a promise of "most favorable" terms for forthcoming telephone-over-cable services.

A Microsoft spokeswoman yesterday refused to comment on possible negotiations between the software giant and AT&T.

AT&T's chief executive C. Michael Armstrong, speaking on CNBC, also had nothing to say on the reported deal.