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Microsoft says the new European search technology centre will have hubs in Paris, London and Munich.

It added its budget for research and development in Europe, which currently stands at $600 million a year, would increase.

"We are the challenger, not the leader, in search, but we believe strongly that search is in its infancy and there is so much room for innovation," said chief executive Steve Ballmer, speaking in Paris.

"For companies like Microsoft search is the key for unlocking

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huge new opportunities in advertising."

Ballmer declined to say how much the group would invest in the research centres, but said that "over the next few years we expect to employ several hundred people, software developers, in these centres in Europe."

Ballmer said the investments announced on Thursday would bring the group's research presence in Europe to 2,000 engineers.

"In many ways it's an interesting time, though, to be talking about investment at all. I was talking to the minister a little bit about the current economic uncertainties and investing in anything today can, I think, be a bit of a hard sell," Ballmer said.

Catching up

Microsoft has about 2% of the European online search market, according to research firm ComScore, compared with Google's 79%.

The company's efforts to catch up have seen it purchase UK mapping specialist Multimap, Germany-based price comparison site Ciao and Norwegian enterprise search company Fast, as it tries to establish a niche in particular search areas used for such purposes as shopping.