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Google Desktop 2 builds on an existing application that allows users to search the hard-drive of their computers through a Google toolbar on their desktop. The updated version will "piggyback" Windows 2000 or Windows XP and will display stock prices, personalised news headlines and weather reports on the right-hand-side of Windows pages.

The Google Sidebar also has its own search box and it adds a new toolbar to Microsoft’s Outlook e-mail program, allowing access to e-mail messages.

News of the product comes just days after Google said it would revisit the Nasdaq stock exchange in New York to raise up to $4 billion in cash. Analysts have since questioned the logic behind the move for a company that already has $2.9 billion in cash on its books and says it is not planning a major acquisition.

Shares in Google fell sharply in the wake of that announcement, losing 7 per cent, and investors are braced for a further slide today when sellers who bought the shares in last year's market debut are able to offload them without paying 40 per cent in capital gains taxes.

The shares traded at $280 each at the close of business on Friday having been launched at $85 a year ago.

As it already dominates the internet paid-search advertising market, investors may demand that Google demonstrates that it can fasten its hugely popular brand to other services and products to fuel future growth.

The original Google desktop search was widely seen as throwing the gauntlet down to Microsoft and the latest version pushes the comparison further. The Desktop 2 Sidebar can be used to find and launch applications. It is similar to the Spotlight feature of Apple Computer Mac OS X and the built-in search of Microsoft Windows Vista, which is expected to be released next year.

Desktop 2 also allows users to access Really Simple Syndication (RSS) feeds, which allows web users to cherry-pick content from their favourite sites and have it flowed to their machine automatically.

"For the novice, it’s very easy. They don’t even have to know what RSS feeds are," Nikhil Bhatla, Google Desktop’s product manager, said. "They’ll just start seeing them in the Sidebar. Advanced users can go in and customise to their hearts’ delight."

A photo module displays pictures from the local PC. It also pulls pictures from Web-based galleries that have been visited.

Some features, including the "personalised news" function, involve sending details of a user's surfing habits back to Google. Google insists that no personally identifying data is transmitted, and users can opt out of the system. However, it recommends against using the desktop program tool on computers in Internet cafes or in cases where many people share the same operating system account.

Google has already targeted people using Microsoft Windows 2000 and XP, who account for the majority of the desktop market. Other recent launches include Google Earth, which also only works with Windows only, and a blogging tool which works with Microsoft Word.