Rumours play havoc with Yahoo's share price

Yahoo stock rose nine per cent on the news that Carl Icahn has bought another seven million shares

Yahoo's share price has been fluctuating over rumours that the company may be about to sign a deal with Microsoft following the departure of Jerry Yang.

On Friday shares rose nine per cent on the news that Carl Icahn, who already has a significant holding in Yahoo and favours a deal with Microsoft, bought another seven million shares in the beleaguered search company. He now owns more than five per cent of Yahoo.

But over the weekend The Sunday Times ran a story that the deal with Microsoft was back on, with reports that it was willing to pay $20bn (£13bn) for Yahoo's search business.

The deal would be overseen by Jonathan Miller, ex-chairman and chief executive of AOL, and Ross Levinsohn, a former president of Fox Interactive Media, the paper reported.

However, according to the All Things Digital blog, which runs within The Wall Street Journal organisation, Levinsohn described the Sunday Times story as "total fiction".

Both Microsoft and Yahoo have refused to comment on the report, but shares in Yahoo have dropped over six per cent. Currently the company is valued at around $15bn.

Microsoft chief executive Steve Ballmer has consistently stated that he is no longer interested in a deal to buy Yahoo, and the company is looking for other partners to help bolster its search business.