By Eric Auchard
MENLO PARK, Calif., May 25 (Reuters) - Yahoo Inc. (YHOO.O: Quote, Profile, Research) and Web auctioneer eBay Inc. (EBAY.O: Quote, Profile, Research) on Thursday said they agreed to form a broad alliance in the United States designed to boost their positions amid growing competition with Google Inc. (GOOG.O: Quote, Profile, Research) and Microsoft Corp. (MSFT.O: Quote, Profile, Research).
eBay shares soared nearly 9 percent and Yahoo rose more than 3 percent on news of the partnership.
Yahoo, the world's largest Internet media company, will become the exclusive provider of graphical advertising on eBay, the biggest e-commerce player and provide some search services within eBay's site to connect buyers to items they seek.
In return, Yahoo will promote PayPal, EBay's popular online payment system, as a way for Yahoo's hundreds of thousands of affiliated Web sites and small business owners to conduct transactions online.
The deal -- rumblings of which were widely known in Silicon Valley and on Wall Street -- stops short of an outright merger. But it reflects the growing need for the biggest Internet companies to consolidate their various operations in the face of a mounting four-way competition and slowing growth rates.
When asked in an interview whether the alliance could lead to further ties between the two companies, John Donahoe, the president of eBay's marketplaces unit responded: "We will see. We think there is so much opportunity right in front of us. That's where our focus will be in the next six to 12 months."
Chief Financial Officer Susan Decker declined to comment on whether the possibility of an outright merger was involved.
The companies said the alliance will not have a material impact on 2006 results for either.
The agreed alliance is a response to inroads by Google's popular Web search system in setting the terms of where consumers go to shop, entertain or inform themselves. This competitive dynamic is forcing every major Internet player to consider joining forces instead of trying to go it alone.
Executives at eBay and Yahoo said the deal builds on many cultural similarities that bind two of Silicon Valley's biggest employers.
The current deal covers partnerships in the United States between the two companies. Depending on how these initiatives work, further relationships could develop, Donahoe said.
In addition to the search and PayPal aspects of the deal, Yahoo Web search features also will be offered through a co-branded version of a browser toolbar for eBay users, and the companies said they would explore developing "click-to-call" Internet advertising that could take advantage of eBay's Skype Web telephone service and Yahoo's messaging.
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