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"His continued presence is the biggest overhang on Microsoft's stock," Einhorn said in reference to Ballmer.

The comments by outspoken Einhorn, who made his name warning about Lehman Brothers' financial health before the investment bank's collapse, are the most pointed yet from a high-profile investor against Microsoft's leadership.

Microsoft shares, which have been static for over a decade, gained 0.87 percent in after-hours trading after Einhorn's comments, the most of any Dow Jones industrial average component.

The software giant, which was the largest U.S. company by market value in the late 1990s, has since been overtaken by Apple Inc and IBM in market value, and is no longer seen as a dominating force in technology after a failure to capitalize on new Internet and mobile computing markets.

The stock is down 6 percent in the last two weeks alone after Microsoft agreed to pay $8.5 billion for Internet phone service Skype, a move which mystified many investors.

Speaking at the annual Ira Sohn Investment Research Conference in New York on Wednesday, Einhorn said it was time for Ballmer -- who succeeded co-founder Bill Gates in 2000 -- to step aside and "give someone else a chance."

Einhorn's comments echo what some investors have said for some years in private.

A Microsoft spokesman declined comment on Einhorn's remarks.

RECENT BUYER

Einhorn's Greenlight Capital hedge fund has been a recent buyer of Microsoft stock, which at under 10 times expected earnings is regarded by many as undervalued.

Greenlight held about 9 million shares in Microsoft, or 0.11 percent of the company's outstanding shares, at the end of the first quarter, according to Thomson Reuters data.

Einhorn also said it was time for Microsoft to consider strategic alternatives for its money-losing online business, which has so far failed to win share from online search leader Google Inc.

The online services unit, which runs the Bing search engine and MSN web portal, had a loss of $726 million last quarter and has now lost $7 billion in four years.

Bing has made some progress, raising its U.S. Internet search market share to 14 percent from 8 percent in the two years since launch, but has not taken any share from Google, which has held on to its 65 percent share, according to research firm comScore.

Einhorn declined to comment further.

OLD FOES APPLE, IBM REVIVED

On Tuesday, Microsoft was overtaken by IBM in market value for the first time in 15 years, chiefly because of Microsoft's static share price. Apple roared past it last year to become the world's most valuable tech company.

(Graphic showing market value of Apple, IBM and Microsoft over time: r.reuters.com/jaw69r )

An investor who put $100,000 into Microsoft stock 10 years ago would now have about $69,000 worth.

Einhorn, the president of Greenlight Capital, which had $7.8 billion of assets as of January 1, made his name with the prescient call on Lehman's accounting troubles.

In the spring of 2008, Einhorn said Lehman -- and its then-Chief Financial Officer Erin Callan -- had understated its own problems and needed to raise capital to support a balance sheet peppered with risky assets.

Einhorn's public speeches on the matter in April and May 2008 -- including one at the Ira Sohn conference that year -- touched a nerve with other investors and are widely credited as leading to Callan's departure from the company a few months before its collapse.

Microsoft shares, which gained 4 cents in normal trading, ended up a further 12 cents at $24.31 in after-hours activity.

(Reporting by Bill Rigby, Svea Herbst and Edwin Chan; Editing by Steve Orlofsky, Lisa Shumaker and Carol Bishopric)

Microsoft, which was the largest U.S. company by market value in the late 1990s, has seen its stock stand still for the past 10 years as it failed to attack new Internet and mobile computing markets, surrendering leadership of the tech sector to Apple Inc.

Microsoft shares shot up 0.87 percent in after-hours trading, the most of any Dow Jones industrial average component.

Many have been privately critical of Ballmer, but Einhorn's remarks are the most pointed yet from a high-profile investor.

Einhorn's Greenlight Capital hedge fund has been a recent buyer of Microsoft stock, which at under 10 times expected earnings is regarded by many as undervalued.

Greenlight currently holds about 9 million shares in Microsoft, or 0.11 percent of the company's outstanding shares, according to Thomson Reuters data.

Speaking at the annual Ira Sohn Investment Research Conference in New York on Wednesday, Einhorn said it was time for Ballmer -- who succeeded co-founder Bill Gates in 2000 -- to step aside and "give someone else a chance."

"His continued presence is the biggest overhang on Microsoft's stock," he said.

On Tuesday, Microsoft was overtaken by IBM in market value for the first time in 15 years, chiefly because of its static shares. Apple roared past it last year to become the world's most valuable tech company.

An investor who put $100,000 into Microsoft stock 10 years ago would now have about $69,000 worth.

Einhorn, the president of Greenlight Capital, which had $7.8 billion of assets as of January 1, first rose to prominence for making a prescient call on Lehman Brothers' accounting troubles before the bank's subsequent collapse.

Shares of Microsoft edged up 0.87 percent to $24.40 in afterhours trade from a regular-session close of $24.19.

(Reporting by Bill Rigby, Svea Herbst and Edwin Chan; Editing by Steve Orlofsky and Lisa Shumaker)

Equities on Wall Street slipped in light volume on Tuesday on growing concerns over slower economic growth and worries about the euro zone debt crisis.

The S&P 500 closed at its lowest level in over a month and ended below its 50-day moving average for a second straight day.

Recent weak economic data, including soft manufacturing data from the Atlantic region and disappointing New York and Philadelphia Fed manufacturing surveys, pointed to a slowdown in the pace of economic growth.

Investors are likely to look for further evidence when U.S. durable goods orders for April is released at 8:30 a.m. EDT.

Durable goods orders are expected to have dropped 2.2 percent in April, a sharp correction from the gain of 4.1 percent the month before weighed down by weak aircraft orders.

Other data due includes home price numbers due at 10 a.m. EDT.

On the earnings front, Costco Wholesale Corp (COST.O) posted a higher quarterly profit as it sold more gasoline and got a boost from stronger foreign currencies.

Other quarterly earnings set for release include Computer Sciences Corp (CSC.N), seen reporting earnings per share (EPS) of $1.11 against $1.66 a year ago, and Polo Ralph Lauren (RL.N), seen reporting EPS of $0.79 against $1.14 a year ago.

The U.S. Treasury made a small profit when it sold a portion of its shares in American International Group Inc (AIG.N) on Tuesday, but it was unclear how its investment in the beleaguered insurer will ultimately fare. The shares were sold at $29 a piece.

U.S. regulators launched one of the biggest ever crackdowns on oil price manipulation on Tuesday, suing two well-known traders and two trading firms owned by Norwegian billionaire John Fredriksen for allegedly making $50 million by squeezing markets in 2008.

GE Capital (GE.N) is selling its A$5 billion ($5.3 billion) Australia and New Zealand mortgages books to Pepper Homeloans as concerns rise over a softening of the Australian housing market and rising cost of funds.

Chrysler on Tuesday paid back $7.6 billion in U.S. and Canadian government loans from its 2009 bailout, a move that allows the U.S. automaker to distance itself from an unpopular bailout and deepen its ties with Fiat (FIA.MI)

On the economic front, the OECD said global economic recovery is on track, helped by a stronger United States, but threats ranging from high oil prices to European sovereign debt crises could yet combine to create a bout of stagflation.

France's finance minister is set to declare on Wednesday she wants to be the next head of the IMF even though big emerging economies have decried Europe's "obsolete" grip on the top job.

In Europe, the pan-European FTSEurofirst 300 .FTEU3 index of top shares edged up 0.1 percent, rebounding from falls at the open, investors bought beaten-down banking stocks.

(Editing by Louise Heavens)

Asian stocks also fell, tracking weakness on Wall Street as firmer commodity prices were offset by lingering concerns over the economic outlook for the United States as well as euro zone debt woes.

The euro, which had rallied after better-than-expected German business confidence data on Tuesday, edged back in the direction of a two-month low of $1.3968 hit earlier this week. It has lost roughly 6 percent since early May.

Europe's policy options to avert a Greek debt default appear to be dwindling fast, casting a pall over the single currency and fueling fears of a chain reaction in other heavily indebted countries in the 17-nation euro area.

"Concern about Spain and Italy might be overblown, but the Greece issue is not going away, and if Greece restructures, that may open the door for Ireland and Portugal." said Brian Dolan, chief strategist at Forex.com.

The U.S. dollar .DXY rose 0.3 percent against a basket of major currencies.

A Greek debt default would hurt other peripheral euro zone states and could push Portuguese and Irish debt into junk territory, Moody's said on Tuesday, warning it would classify most forms of restructuring as a default.

As investors reduced exposure to riskier assets, MSCI's index of Asia-Pacific stocks outside Japan fell 0.7 percent while Japan's benchmark Nikkei slipped 0.46 percent.

Oil slid as the dollar rebounded against the euro, giving up some of its 2 percent rise overnight after Goldman Sachs raised its price forecasts for Brent crude. Brent crude for July delivery fell 0.64 percent to $111.81 a barrel, having swung between $109.50 and $112.65.

Euro-denominated gold hit a record high after the euro edged back toward a two-month low on euro zone debt fears.

Spot gold fell to $1,524.20 an ounce after rising as high as $1,527.45 on Tuesday, its strongest since May 4. Bullion was still below a lifetime high around $1,575 an ounce struck in early May.