The two companies have held informal talks, CNet News.com reported, but neither company has confirmed what was discussed.

Microsoft offered to buy Yahoo! six weeks ago for $44.6 billion. Since then, Yahoo!, which rejected the offer, has pursued deals with other companies, including Google and AOL. But none of the negotiations have come to fruition.

Furthermore, Yahoo! can "all but rule out performance improvement as a viable alternative to match the value of Microsoft's bid," Sanford C. Bernstein and Co. analyst Jeffery Lindsay wrote recently.

Lindsay said Yahoo!'s next quarterly financial report would be "mediocre," the Seattle Post-Intelligencer reported. He also said a deal with another company included "near insurmountable" difficulties.

"I think Microsoft is prepared to stick with it," industry analyst Matt Rosoff told the newspaper. "I don't think they have any intention of backing away."