Google and Yahoo may pull out this week from their proposed advertising partnership, which has been drawing close scrutiny from anti-trust regulators, The Wall Street Journal reported on Friday.

The newspaper, citing "people familiar with the matter," said prospects for the agreement had "dimmed" and the internet powers were "considering walking away from the deal as early as next week".

"While the parties may agree to continue the talks — or they could reach a resolution — there are signs they are unwilling to make compromises to address the Justice Department's objections," the Journal said.

Google and Yahoo spokespersons told the Journal that the discussions with the Justice Department were continuing but declined to discuss details of the talks.

Google and Yahoo, respectively number one and number two in the internet ad market, announced on 3 October that they were delaying the start of the alliance until at least 22 October to give regulators more time.

That date came and went, however, without the companies implementing the agreement, which would put Google technology to work targeting search ads on Yahoo pages.

Software giant Microsoft, advertisers and regulators have raised objections to a tie-up between Google and Yahoo claiming it would allow Google to tighten its grip on online advertising and restrict competition.

Microsoft senior vice president and general counsel Brad Smith has argued the deal would give Google "an unprecedented level of control over advertising for search on the internet — up to 90 percent potentially of all search ads".

Microsoft is number three in the online ad market and made a failed bid earlier this year to take over Yahoo, which expects hundreds of millions of dollars in revenue from the ad tie-up with Google in the first year alone.

AFP