The Microsoft-Yahoo saga just won't end, with Wall Street still holding out hope of a deal between the two companies.
Shares in the internet portal were up 11 per cent on Tuesday, reversing earlier declines, after contradictory reports on whether buyout talks with Microsoft were heating up again.
"People are attributing huge outcomes to very small pieces of information," said Sanford C Bernstein analyst Jeffrey Lindsay, referring to a flurry of thinly detailed stories citing unnamed sources that caused Yahoo's stock to spike.
Following an unsubstantiated claim on a technology blog that merger talks were back on, Yahoo shares hit $23.71 (12), a 10.5 per cent rise from their Monday close.
The shares erased most of the gains after TV news channel CNBC dismissed the blog claims, insisting that no deal was on the table between the two companies. Other news reports had also suggested talks on a partial deal were back on. The reports all cited unnamed sources.
"It's 'he said, she said,'" Canaccord Adams analyst Colin Gillis said.
Both Microsoft and Yahoo declined to comment.
In June, Yahoo turned down Microsoft's estimated $9 billion (4.5 billion) revised offer to buy a 16 per cent stake in the company as well as Yahoo's search business. Instead Yahoo cut a non-exclusive ad sales deal with Google.
Reports of a rekindling of talks gave hope to Yahoo investors incensed over what was perceived as the botched handling of Microsoft's initial overtures in January.
"The options in Yahoo are very susceptible to any sort of speculation on a strategic partnership that might put the company on a more resolute path," said Rebecca Engmann Darst, equity options analyst at Interactive Brokers Group.
Yahoo has said it remained open to more talks with Microsoft.
