If the world needed another sign of Google's Inc.'s dominance, it came yesterday.

Software behemoth Microsoft Corp. was reported to be trying to buy the Web search engine's closest rival, Yahoo Inc.

Yet Google's stock barely budged — not because Wall Street didn't believe the deal would come off, but because investors didn't think that a union of two such powerful Internet players would pose much of a threat to Google.

Microsoft and Yahoo have held on-again, off-again negotiations for years, and the new dialogue isn't any more intense than in the past, people familiar with the discussions said.

The New York Post reported yesterday that Microsoft was urging Yahoo to enter into formal takeover discussions for a deal worth as much as $50 billion, while later reports said Yahoo was interested only in an alliance of online efforts. The companies declined to comment.

With both companies increasingly threatened by Google's power, investors bet that some sort of a deal would transpire this time that valued Yahoo at a premium. They sent the Sunnyvale, Calif. company's stock up as high as 17 percent before it closed up 10 percent, at $30.98.

MUST THINK 'SMARTER'

Google's investors gave a collective shrug, with the shares falling by less than half of a percentage point. That's because even a combined Microsoft-Yahoo would lag Google in search-market share, advertising technology and consumer appeal.

The two companies together conducted one-third of all U.S. searches in March, compared with 52 percent for Google, according to research company Nielsen/NetRatings.

"Instead of getting bigger, these companies need to think about getting smarter," said Scott Kessler, an Internet industry analyst with Standard & Poor's. "I don't think a partnership is necessarily going to achieve that goal."

Microsoft shares fell 1.3 percent to $30.56.

Many investors and analysts supported a partnership or full acquisition, saying that a united company stood a better chance against Mountain View, Calif.-based Google in related areas such as e-mail and applications for mobile devices.

Some analysts said that Yahoo's search technology was better than Microsoft's and not too far behind Google's. Yahoo's Web pages also are viewed more than Microsoft's, making it the Web's biggest recipient of revenue from banners and other display ads.

POWERFUL COMBO

Microsoft, for its part, touches the vast majority of computer owners by supplying the operating system that runs those machines, the browser they user to visit Web sites and the most popular programs for producing documents.

"The positive is, you have a lot of assets to bring to bear (in an alliance)," said Ellen Siminoff, who founded Yahoo's business-development unit and now heads Efficient Frontier Inc., which buys ads for its clients in Yahoo and Google's search engines.

"Yahoo and Microsoft between them know about search, plus discovery, plus what happens on the browser and the desktop," Siminoff said. "It's a very powerful combination."

Both companies have been spending furiously to try to keep up with Google.

Yahoo's new system for placing effective and profitable search ads has made little impact so far, but Yahoo Chief Executive Terry Semel has said it's working well so far. Yahoo expects the system to improve earnings later this year.