Yahoo rises on merger hopes

Shares in web search engine firm Yahoo surged last night amid feverish speculation the merger talks with Microsoft could be revived.

Yahoo rose 17% after Microsoft chief executive Steve Ballmer said a web search advertising deal between the two companies would "make economic sense".

But 5% was later erased from the gains after Microsoft said it had no interest in buying Yahoo outright.

Talks between the two broke off in July after Yahoo rejected Microsoft's proposal to buy its search advertising business and enact a revenue-sharing partnership.

In May, Yahoo rebuffed a $47.5 billion (£27.3 billion) hostile bid from Microsoft and instead signed a search advertising pact with Google, which yesterday saw shares jump 10% after better-than-expected profits.

Since talks broke off, Yahoo shares have plunged to a five-and-a-half-year low $11.37, on concerns over the outlook for web display advertising.