Shares in Yahoo! jumped 18 per cent in pre-market trade in New York today on reports that Microsoft is once again weighing a bid for the embattled internet giant and has asked for formal talks to be renewed.

The shares hit $33.16 ahead of the bell, valuing Yahoo! at about $45 billion (£22.5bn). Shares in Microsoft, the world's largest software developer, were down 1.4 per cent, at $30.53 valuing it just short of $300 billion.

It is believed Yahoo! could fetch around $50 billion.

The move follows an attempt by Microsoft to acquire Yahoo! a few months ago in a bid to mount a credible attack on Google, the runaway leader in online advertising. That approach was rebuffed.

Background

• Yahoo! chief quits after fierce criticism

• Search is history, says Yahoo!

• Microsoft weighs $50bn tilt at Yahoo!

• Microsoft in merger talks with Yahoo!

• Yahoo! eyes $1bn bid for Bebo

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Another option understood to be being discussed would involve Microsoft and Yahoo! co-operating more closely in those parts of their businesses that compete with Google.

The New York Post reports today that Microsoft is being advised by Goldman Sachs. The paper says that a deal between Microsoft and Yahoo! would increase the combined companies' share of the search advertising market to 27 per cent against Google's 65 per cent.

Microsoft has been stung by a string of large deals forged by Google, including the internet search company's $3.1 billion acquisition of DoubleClick, the largest broker of display — or banner — advertising, last month.

The software giant is understood to have matched Google's $3.1 billion bid but was rebuffed.

Microsoft was also hit by Google's acquisition of YouTube, the video-sharing site, for $1.6 billion last year. Soapbox, a rival video site launched by Microsoft, has failed to make an impression.

Sales of Vista, the latest version of Microsoft's dominant Windows operating system, have been encouraging, but the company has made it clear that catching Google in the online advertising market is a priority.

A deal to acquire Yahoo! would radically expand Microsoft's footprint in display advertising, an area where Yahoo! has traditionally been strong. It would also give Microsoft access to Panama, the online operating system that Yahoo! has trumpeted as a realistic threat to Google's prowess.

The mooted deal also puts fresh pressure on Terry Semel, the chief executive of Yahoo! Last month, his handling of poor earnings news was criticised by investors and analysts.

Shareholders were unimpressed by Mr Semel’s failure to answer questions at a meeting about Yahoo!’s 11 per cent drop in quarterly profits, leaving other executives to explain. The company’s shares plunged 9 per cent, wiping $4 billion (£2 billion) off its market value.

Brian Bolan, an analyst at Jackson Securities, said: “Some may think that the underwhelming performance of Yahoo! in the quarter, accompanied by higher costs, higher stock-based [compensation] and a virtually invisible CEO . . . could be a sign of a change at the top in the near-term. We tend to agree.”

The squeeze on Mr Semel worsened just hours after Yahoo!'s earnings news, when Google unveiled profits of $1 billion.

Under Mr Semel, Yahoo has set its sights on Google’s core search business, billing Panama as its key weapon. While most analysts are willing to wait until the second quarter for evidence of its impact, there are growing indications that the grace period will be brief.

Microsoft and Yahoo! were unavailable to comment immediately.

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