Yahoo teams up with rival Google in ad deal

Internet search engine Yahoo has teamed up with rival Google to test run Google adverts alongside Yahoo's own search results.

The two-week trial of Google's AdSense for Search service will be limited to no more than three per cent of Yahoo search queries, Yahoo said.

Yahoo is keen to boost the value of its shares as it attempts to fend off a hostile takeover from Microsoft and has been looking for deals with other firms.

California-based Yahoo has also reportedly held talks with Time-Warner owner AOL and News Corp.

The board has said Microsoft's offer of $31 (£16) a share is too low, but the software giant insists it is a fair price.

Last week Microsoft gave Yahoo a three-week deadline to negotiate a buy-out.

In response to the announcement, Microsoft's general counsel Brad Smith, said: "Any definitive agreement between Yahoo and Google would consolidate over 90 per cent of the search advertising market in Google's hands.

"This would make the market far less competitive, in sharp contrast to our own proposal to acquire Yahoo. We will assess closely all of our options."

The deal may attract attention from US antitrust authorities.

Senator Herb Kohl, a Wisconsin Democrat and chairman of the Senate Judiciary Committee's antitrust subcommittee, said: "Following closely on the heels of Google's acquisition of DoubleClick, this Google-Yahoo alliance would represent even further consolidation in the Internet advertising market."

"Should there be moves to make this agreement permanent, we will examine it closely in the Antitrust Subcommittee to ensure that it does not harm competition."