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Yahoo shares up on news of Microsoft ad deal talks

Stock is up nearly 8 percent in morning trading, following reports that the struggling Internet search pioneer is in preliminary talks for an advertising agreement with its former suitor.

Updated at 11:36 a.m. PST with information on Google's share price performance and an analyst note.

Yahoo shares rose in morning trading on Monday on reports that the company is in preliminary talks for an advertising partnership with Microsoft.

Yahoo's stock was up as much as 7.6 percent to $14.49 in early-morning trading, a level it hasn't seen since early October. Yahoo's gains also went against the tide of the broader markets, which were down in morning trading.

The bump in Yahoo's share price follows reports on Friday that the Internet search pioneer has had discussions with Microsoft recently about such a deal.

Microsoft CEO Steve Ballmer reportedly remains focused on a search-advertising deal with Yahoo, but one that only goes so far and falls short of his previous attempts to acquire the entire company.

Nonetheless, investors apparently were pleased at the notion that the two companies are at least sitting down and speaking with each other about a search-advertising deal or partnership.

The reported talks come at a time when Microsoft and Yahoo are seeking ways to narrow the gap with Google, which has a substantial lead over its competitors.

Google's slice of the U.S. paid search-advertising market is expected to perform on par or better than Wall Street expects, when it reports its first-quarter results on Thursday, according to a research report released on Monday by an Oppenheimer analyst.

In his report, Jason Helfstein notes:

We believe the Street expects U.S. paid clicks to decline; however, third-party data suggests first-quarter U.S. paid clicks increased 10 percent year over year, and coupled with recent cost initiatives, should result in upside to our and Street estimates.

Helfstein noted that he expects Google to report a 5 percent year-over-year decline in first-quarter paid-click revenues while third-party data indicates a 10 percent increase in year-over-year paid click revenues.

Shares of Google rose a modest 1.8 percent to $379.10 a share on Monday, while the broader markets remained under pressure.