Yahoo's stock price leaped about 18 percent and Microsoft's slipped slightly after The Wall Street Journal and The New York Post reported that the technology titans might unite to take on Internet search powerhouse Google.

The Journal backed off the report late Friday, citing anonymous sources as saying that merger discussions took place in recent months but "are no longer active" but the two companies "may still explore other ways of cooperating."

The rumors are at odds with the mood at Sunnyvale, California-based Yahoo, where morale and optimism have been buoyed in recent months with the successful launch of its new Panama online advertising platform.

Moreover, for Microsoft to acquire Yahoo or make a deal for it to handle the Windows Live online search business would be an out-of-character admission of failure by the world's largest software company.