SAN FRANCISCO - Microsoft Corp. finally dangled a higher takeover bid in front of Yahoo Inc. Friday, hoping to reach a friendly deal after weeks of saber rattling.

The New York Times, citing unnamed sources, reported Microsoft boosted the offer by "by several dollars" per share, lending weight to the assertion by many market analysts that Microsoft can afford to pay up to $35 a share.

Representatives from Microsoft and Yahoo declined to comment on the negotiations. The talks were expected to continue into the weekend.

In an intriguing twist, Microsoft Chairman Bill Gates and Yahoo President Susan Decker were both expected to be in Omaha, Neb. this weekend to attend Berkshire Hathaway Inc.'s annual meeting. Both Gates and Decker are on the board of the company led by famed investor Warren Buffett.

The prospect of a sweetened offer lifted Yahoo shares 80 cents in extended trading after surging $1.86, or nearly 7 percent, to finish the regular session at $28.67.

Sunnyvale-based Yahoo began pressing for a higher offer shortly after Microsoft made its unsolicited bid in February. That offer, which was made half in cash and half in stock, is currently valued at $42.3 billion, or $29.40 per share, reflecting the decline in Microsoft shares since it began its pursuit of the Internet pioneer.

Microsoft Chief Executive Steve Ballmer had held firm, insisting the original offer was fair in light of Yahoo's eroding profits during the past two years. He threatened an attempt to oust Yahoo's board if the 10 directors, including Chief Executive Jerry Yang, didn't accept the offer by April 26.

Now that Yahoo has forced the issue by letting the deadline pass, Ballmer appears ready to put more money on the table.

Microsoft's board reportedly met earlier this week to consider raising the bid as high as $33 per share, or about $47.5 billion.

Several of Yahoo's shareholders are reportedly holding out for at least $35 per share, a price that would value the deal at about $50 billion.

Microsoft offered to buy Yahoo for about $40 per share during confidential discussions held in early 2007, but Yahoo's struggles since then make it unlikely the revised bid will be that high.

In a comments to Microsoft employees Thursday, Ballmer said he has a price in mind but didn't reveal it.

"I know exactly what I think Yahoo is worth to me, exactly," Ballmer told the employees, according to a transcript filed with the Securities and Exchange Commission. "I won't go a dime above, and I will go to what I think it's worth if that gets the deal done."

Most analysts have predicted all along that Microsoft eventually would buy Yahoo for $32 to $35 per share, so the news of Friday's negotiations wasn't a major surprise.

"It's all going according to script," said Ken Marlin, a New York investment banker specializing in technology deals.

The outcome of the weekend talks will likely ripple across the Internet.

If Microsoft and Yahoo shake hands on a deal, it will mark a significant step toward uniting two high-tech powerhouses whose online services are used by more than 500 million people worldwide. An amicable transaction also would make it easier to meld the two companies' disparate technologies and cultures.

Should the two sides remain at loggerheads, Microsoft could still try to force a sale by trying to replace Yahoo's board with 10 directors more inclined to approve a deal.

But that risky maneuver, known as a proxy contest, would likely entail several months of mudslinging with no guarantee of success.

Even if Microsoft were to prevail in a hostile takeover, it could wind up with buyer's remorse because the hard feelings provoked by the battle would drive off many of the Yahoo employees needed to make the deal pay off, said Arthur Dudley, a New York lawyer specializing in mergers and acquisitions.

"The trick for Microsoft is to figure out where the tipping point is," Dudley said. "They probably don't want to do a hostile takeover and just wind up with some more computer software and a bunch of empty desks."

Ballmer also has said Microsoft might simply withdraw its offer and walk away from Yahoo. Most analysts doubt Microsoft will give up the chase because Yahoo's still-prized Internet franchise would give the software maker its best chance to chip away at Google Inc.'s dominance of the booming Internet search and advertising market.

Google's specter may have prodded Microsoft's higher bid. Yahoo is reportedly nearing a long-term deal that would allow Google to sell ads on its Web site. Although the alliance might be blocked by antitrust obstacles, Microsoft likely wouldn't want to risk the chance of Google gaining access to Yahoo's vast audience.

Yahoo executives think the company is well positioned to bounce back from its recent malaise, but Dudley doubts the company's board will resist Microsoft if its new offer is sweet enough.

"Yahoo's board won't have a lot of choice if the price is right," Dudley said. "Now, everyone is just scratching their heads trying to figure out what the number is."

___