Yahoo!, the internet search engine under threat of a $44.6bn hostile takeover from Microsoft, is understood to be talking with Time Warner about a potential white knight deal.

Microsoft is itself said to be discussing the possibility of teaming up with Rupert Murdoch's News Corporation, the parent company of The Times and Times Online, to boost its own chances of a successful move on Yahoo!

If News Corp joined forces with Microsoft, the software giant could possibly raise its $31 a share offer. Yahoo! has repeatedly refused to accept Microsoft's offer, while at the same time searching out other 'white knights' which may help it remain independent.

The talks with Time Warner would apparently involve a merger of AOL with Yahoo! in a deal valuing AOL at about $10 billion. Yahoo! would receive cash from Time Warner in exchange for 20 per cent of the combined internet company.

Reports last night suggested that the deal would allow Yahoo! to buy back several billions of dollars worth of its own stock for between $30 and $40 a share compared with the $31 offered by Microsoft.

Last week, Yahoo! Chairman Roy Bostock said it was willing to negotiate with Microsoft about a potential takeover if the software giant was prepared to raise the value of its bid.

Yahoo!'s board is expected to meet this week to talk about its options. The company's shares closed up 0.25 per cent at $27.77 yesterday. Microsoft's closed up 0.49 per cent at $28.89, while News Corp's closed down 1.61 per cent at $18.74.

A link between Microsoft and News Corp would bring together three of the biggest web site publishers - Yahoo!, Microsoft's MSN and News Corp's MySpace - creating a formidable rival to Google.

However, both of the newly mooted transactions are likely to be closely scrutinised by regulatory authorities.

Two months ago Microsoft made its first move on Yahoo! as part of moves by a number of the world's largest media companies to position themselves to challenge Google, the runaway leader in internet services.

At the time, it was reported that News Corp was in talks with Yahoo! as part of an attempt to fend off Microsoft's offer. Rupert Murdoch, chairman and chief executive of News Corp, is understood to have flown to California to meet with Mr Yang in the days shortly after Microsoft 's bid was made public.

However, last month, News Corp indicated that it would not bid independently for Yahoo! against Microsoft.

The terms of any deal between Microsoft and News Corp remain unclear, but one possibility is that News Corp would contribute its digital arm, Fox Interactive Media, as well as some cash as part a joint acquisition of Yahoo! with Microsoft.

Such a merger would create an internet behemoth, consolidating three of the web's most valuable properties - News Corp's MySpace, which has 74 million users globally, according to Nielsen Online, Microsoft, which has 258 million, and Yahoo!, which has 189 million, in one place.

A spokesman for Microsoft would not comment on the suggested tie-up with News Corp but said the company would "closely assess" all its options. A spokesman for Yahoo! declined to comment, and News Corp was not immediately available for comment.

A merger between Yahoo! and AOL, meanwhile, would also unite two of the internet's most valuable properties by bringing Bebo, the social networking site recently bought by AOL for $850 million, into the Yahoo! stable.

Amid this billion-dollar tussle, Yahoo! last night sent a very public signal that it continues to explore alternatives to a sale to Microsoft as it announced plans to test Google’s search advertising technology on some of its web sites.

The Internet group has agreed to outsource its web search advertising to Google for two weeks to determine the revenue potential of a broader search outsourcing arrangement.

The test will be limited to US searches and will apply to less than 3 per cent of its total web search queries.

However, the agreement sends a clear signal to Yahoo!’s investors that it is exploring alternatives to Microsoft’s interest, which it first rebuffed on February 11, saying that it "significantly undervalues" the group.

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