SEATTLE (AP) _ Shares of Microsoft Corp. fell nearly 16 percent Monday as investors coped with a bearish financial outlook, analyst downgrades and government rumblings about a possible company breakup.

Microsoft closed down $12.31 1/4 to $66.62 1/2 on the Nasdaq Stock Market, helping push the Nasdaq composite index down more than 4 percent.

The software company, riding a wave of bad news, has lost more than 40 percent of its market value since its high point last December, dropping from about $620 billion to $345 billion as of Monday's close.

Much of the decline occurred this month after a federal judge ruled against the software giant in the ongoing antitrust case, saying it broke federal and state antitrust laws through its actions. A number of reports Monday that the Justice Department and 19 states were looking to break up the company contributed to the selloff.

But Microsoft shares already were feeling pressured following its third-quarter earnings report last Thursday after the markets had closed. Although profits were up 24 percent over a year ago, Microsoft said that fourth-quarter revenues and earnings would remain stagnant.

Although Microsoft is usually very conservative with its future estimates, analysts felt that Thursday's warning by its chief financial officer, John Connors, was particularly grim.

``I think they're being overly conservative,'' said analyst William Epifanio of J.P. Morgan. ``Still, the fourth-quarter does look pretty weak.''

The markets were closed on Good Friday, giving investors and analysts an extra day to digest the news, which also included lowered estimates for its fiscal year 2001 beginning July 1.

The lowered estimates were a surprise to many analysts, who were expecting better earnings due to a stream of current and upcoming product releases, including the Windows 2000 operating system for businesses, the Windows Millennium system for home users, and server software such as SQL Server 2000 and Exchange Server 2000.

``The new CFO most likely wanted to place a growth rate that was confidently low,'' said Kay Doremus, an analyst with American Express. ``That's what caught me off guard. I'm still rated a buy on Microsoft, but the volatility will be very high for the near future.''

A few analysts took Microsoft's outlook to heart, lowering their ratings on the company. Goldman Sachs analyst Rick Sherlund, who had already lowered his estimates for Microsoft earlier this month, took Microsoft off his U.S. recommended list, while SG Cowen Securities Corp. lowered its rating from ``strong buy'' to ``buy.''

Monday's news reports didn't help matters. The Wall Street Journal, The Washington Post and USA Today all said that the government was looking to break up the company. Microsoft spokesman Jim Cullinan called the idea ``an extreme and radical remedy,'' but the publicity damage had been done.

After finishing regular trading $78.93 3/4 on Thursday, the opening bid on Monday was just $67.25, already surpassing Microsoft's previous 52-week low, $73, from April 17. It dove to $65 per share in early morning trading before leveling off at around $66 for the rest of the day.

More than 155 million shares were traded, nearly four times the stock's average daily volume of 39.9 million over the past three months.

Microsoft chairman Bill Gates, who owns approximately 742 million shares of the company, lost $9.1 billion of his total worth Monday. Gates, who has extensive wealth outside of the company he co-founded, had $49.4 billion in of Microsoft stock as of Monday.