Yahoo makes Google ad deal; Microsoft talks fail

SEATTLE/SAN FRANCISCO: Microsoft's plan to establish a strong footing in online advertising suffered a big blow on Thursday, as merger talks with Yahoo finally failed and Yahoo said it would let Google sell search ads on its site.

Separate statements from Microsoft and Yahoo signaled a real rift between the two after their agonizing on-again, off-again talks, and Yahoo shares fell 10 percent, as final hopes of a full or partial acquisition faded.

Microsoft shares rose more than 4 percent as investors showed relief the company would not be paying too high a price for a deal they considered risky - even though its biggest rivals on the Web aimed to work together.