The jump in share price now values Yahoo! at around $45bn (£22.5bn), but any potential bid for the company could fetch upwards of $50bn -- a sixth of Microsoft's current market value.
The share hike occurred in pre-market trading in New York this morning followed a report by the New York Post that Microsoft and Yahoo! have reopened discussions over a possible sale.
Microsoft is believed to have made an approach for Yahoo! earlier this year, but the interest was swiftly rebuffed.
Yahoo! chief executive Terry Semel has downplayed suggestions that Microsoft was interested in acquiring the business outright, stating the two companies had only discussed the possibility of Microsoft buying a stake in Yahoo!'s search business.
Google's recent $3.5bn (£1.75bn) capture of DoubleClick is understood to have added a new urgency to Microsoft's attempt to secure a search business capable of taking on Google's dominance.
According to the New York Post a merger between Microsoft and Yahoo! would increase Yahoo!'s global online ad market share to around 27%.
In the US search market Google currently holds a 48% share with Yahoo! far behind on 28%.
Google reported net profits of $1bn (£500m) for the first quarter of 2007, marking a 69% increase year on year. In comparison, Yahoo! posted an 11% fall in first-quarter profits to $142m (£71m) in April, but the company said it was optimistic of achieving double-digit growth for the rest of the year.
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