NEW YORK (Reuters) - Yahoo Inc may have played its top two cards by pulling out possible deals with AOL and Google, but it does not seem to have changed Wall Street’s view that Microsoft will eventually win the takeover battle.

Yahoo announced on Wednesday a test to outsource Web search advertising to Google Inc. Sources say the test is part of a planned three-way alliance to combine Yahoo with Time Warner Inc’s AOL instead of Microsoft Corp.

But hours later, the world’s largest software company appeared to trump Yahoo’s announcement as the New York Times reported that Rupert Murdoch’s News Corp was in talks to join Microsoft’s $42.3 billion bid for the Web pioneer.

“Everyone is just exploring. The best option is to accept the Microsoft deal,” said fund manager Mike Binger at Thrivent Financial in Minneapolis, which owns small stakes in Yahoo and Microsoft.

Binger said an AOL-Yahoo merger made no sense. “I just see Yahoo as a mature brand and AOL as a declining brand,” he said. As of December 31, Thrivent owned about 1.5 million Yahoo shares, or 0.11 percent, and about 6.3 million Microsoft shares, or 0.07 percent, according to regulatory filings.

Yahoo shares rose nearly 3 percent on Thursday to close at $28.59, while Microsoft rose 0.8 percent to $29.11.

Microsoft’s cash-and-stock offer now values Yahoo at $29.33 per share, which the Web company rejects as too low. But before Wednesday, Yahoo appeared to have run out of alternatives to Microsoft, which has threatened to lower its bid if it was not accepted within three weeks.

Yahoo is now nearing a deal with Time Warner to fold AOL, excluding its dial-up Internet access business, into a combined company, sources familiar with the talks said on Wednesday.

A deal would value AOL at $10 billion, with Time Warner kicking in some cash in exchange for 20 percent of the combined unit. Yahoo plans to use the cash and other funds to buy back several-billion dollars in stock at a price near the middle of a range between $30 to $40 a share, a source familiar with the plans said on Thursday.

“The structure of the AOL deal is likely to be less appealing to Yahoo shareholders than the straight-forward Microsoft bid,” Jefferies & Co analyst Youssef Squali said. “We believe that a ‘clean’ acquisition of Yahoo by Microsoft is still the most likely scenario.”

UBS analyst Heather Bellini agreed that Yahoo management would have a difficult time convincing its shareholders that its alternative deal was worth more than Microsoft’s offer.

“Even if shares were repurchased at $35-plus a share, the shares likely would pull back once the buyback is done,” Bellini wrote in a report.

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ANTITRUST SCRUTINY

A joint Microsoft-News Corp bid could create a more formidable competitor to Google by uniting three of the biggest Web site publishers: Yahoo, Microsoft’s MSN and News Corp’s MySpace social network.

Bellini noted that while a tie-up could make sense by lowering Microsoft’s financial risk, there would be an increased risk over integration.

Google is seen out of the running for buying Yahoo outright, due to antitrust concerns. However, Yahoo’s two-week test of Google’s search advertising technology could lead to a broader deal.

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Citigroup analysts Mark Mahaney and Brent Thill estimated a full search outsourcing deal could generate more than $1 billion in cash flow to Yahoo, though they also say a Microsoft deal is the “most likely outcome.”

Antitrust lawyer Evan Stewart, of Zuckerman Spaeder LLP, said a tie-up between Google and Yahoo would raise eyebrows, even if the deal was not a formal merger.

He called the U.S. Justice Department an 800-pound gorilla with the power to investigate any deal it found troubling. “If Yahoo were to be swallowed up by Google, even a sleeping 800-pound gorilla would wake up to that,” Stewart said.

Any of the potential mergers would fundamentally change business on the Web as growth slows dramatically after an explosive decade. Talks with News Corp, which earlier had discussed working with Yahoo as a counter to Microsoft, are at a sensitive stage, The New York Times said. The Wall Street Journal called those talks “serious.”

News Corp shares edged down 0.3 percent to $18.89, and Time Warner shares rose 1.3 percent to $14.61. Google rose more than 1 percent to $469.08.

Microsoft, News Corp, Time Warner, Google and Yahoo have all declined to comment on the talks.