Jerry Yang, the chief executive of Yahoo!, is to step down as soon as the embattled internet search engine group finds a successor.

The company has started a search for a new chief executive after months of turmoil and a sharply falling share price. In early trading, however, shares in Yahoo! soared by 11.19 per cent, rising by $1.19, to $11.82 as investors reacted to Mr Yang's resignation.

Mr Yang, a co-founder of Yahoo!, will remain as chief executive until a replacement is found, after which he will return to his former role, concentrating on the company's development strategy and technology advances.

He will also continue to serve on the board.

Mr Yang's tenure may have been shortened when Steve Ballmer, chief executive of Microsoft, earlier this month delivered a blow to Yahoo!'s hope of renewing bid talks between the two groups, saying that the world's largest software company was "not interested".

Mr Ballmer made his statement after Mr Yang admitted that he was open to a new deal with Microsoft after a key advertising partnership with Google fell apart. Google pulled out when US antitrust regulators indicated they were against the deal.

Yahoo! rejected hostile bids earlier this year from Microsoft, which had offered $47.5 billion for the business.

Mr Yang, 40, became chief executive in June 2007, and he has led Yahoo! through a repositioning and transformation of its strategy.

But his many critics said he was unable to give the company proper leadership when it was targeted by Microsoft and then buffeted by the economic downturn.

Last week, Yahoo! shares dropped below $10, a five-year low. They have been as high as $30.25 within the past 12 months. At yesterday's close the shares stood at $10.63, giving the company a valuation of just $14.7 billion.

Mr Yang took over suddenly from Terry Semel, the former chief executive, whose departure also came after Yahoo!'s struggles worsened.

He has sought to turn Yahoo! into more of an internet platform, an essential one-stop for users. But several senior executives have left the company and Mr Yang recently announced job cuts of 10 per cent of the workforce, which are set to take place on December 10.

Roy Bostock, chairman of Yahoo!, is leading the search for a new chief executive from within or outside the company. The board has retained Heidrick & Struggles, an executive search firm.

"Over the past year and a half, despite extraordinary challenges and distractions, Jerry Yang has led the repositioning of Yahoo! on an open platform model as well as the improved alignment of costs and revenues," said Mr Bostock.

"Jerry and the board have had an ongoing dialogue about succession timing, and we all agree that now is the right time to make the transition to a new chief executive who can take the company to the next level."

In a resignation letter, Mr Yang said: "From founding this company to guiding its growth into a trusted global brand that is indispensible to millions of people, I have always sought to do what is best for our franchise," he said.

"When the board asked me to become chief executive and lead the transformation of the company, I did so because it was important to re-envision the business for a different era to drive more effective growth. Having set Yahoo! on a new, more open path, the time is right for me to transition the chief executive role and our global talent to a new leader," he added.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive