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* Says problems with some handsets
* Sees larger-scale 'Mango' update this year
* No date yet for first Nokia Windows phone
* Microsoft shares little changed (Adds mention of larger update, Nokia phones)
SEATTLE, April 13 (Reuters) - Microsoft Corp (MSFT.O) explained the delay in updating its new phone software on Wednesday, partly blaming handset manufacturers for the problem.
Windows Phone 7, launched last October as Microsoft's attempt to catch up with Apple Inc (AAPL.O) and Google Inc (GOOG.O) in the smartphone market, was well received, but criticized for lack of some basic functions such as cut and paste.
Microsoft initially said an update to the software would be available early in 2011, but it has not yet been implemented for many users.
"We had expected it to be earlier than now," Joe Belfiore, head of Microsoft's Windows phone program, said at a software developer conference in Las Vegas on Wednesday.
Belfiore said the company had started the update, but ran into problems on some newly manufactured phones that would not function properly afterward.
Once the company found the problems, it overhauled its update procedure, said Belfiore.
"We felt it would be better to be a little bit patient, make sure that when we get updates out that they would happen reliably, and unfortunately that caused a delay in getting things out," he said.
Belfiore said he was now "optimistic" that there will not be similar problems with future updates. A more comprehensive update, code-named Mango, will be available later this year, he said.
Microsoft still has only a 4 percent share of the worldwide smartphone software market, according to research firm Gartner, but it is expected to be a major player once its deal to provide the operating system for leading handset maker Nokia NOK1V.HE takes effect.
A Nokia developer onstage at the Las Vegas conference said there was still no date for when the new Microsoft-powered phones will hit the market.
Shares of Microsoft were up 3 cents at $25.67 in afternoon Nasdaq trading. (Reporting by Bill Rigby; Editing by Lisa Von Ahn)