Microsoft has a new initiative aimed at promoting the use of its Windows operating system in low-cost PC's.

The computing giant plans to offer PC makers significant price cuts on Windows XP licenses but will only be available for computers with low hardware specifications limited to 10.2 inches for screen sizes and hard drives no bigger than 80 GB.

Low-cost PC's have grown in popularity, with the Asus Eee PC equipped with a modified version of the Xandros Linux system.

Windows Vista requires increased hardware specification and XP licenses are usually expensive, which to date has added extra expense that could be avoided by using Linux.

Roger Kay of EndPoint technologies told IDG News Service that the new plans by Microsoft "allows PC makers to offer a low-cost alternative, and it prevents eroding of pricing and margins in the mainstream operating system market".

PC World reported recently that the Royal Bank of Canada is offering a free Asus Eee PC to people who open a new bank account.