Microsoft joins a number of other potential buyers looking at Yahoo, which has a market value of about $18bn (£11.7bn).
Among the interested names are private equity houses Providence, Hellman & Friedman and Silver Lake, as well as Chinese e-commerce giant Alibaba and Russian technology investment firm DST Global, the sources said.
Yahoo’s long-time advisers Goldman Sachs and Allen & Co are already preparing financial information to send out as it put itself on the block.
Yahoo shares jumped 10.1 per cent on the news, while Microsoft shares ended 2.2 per cent higher after rising about three per cent during trading.
Under a ten-year deal struck in 2009, Microsoft’s Bing already powers Yahoo searches, but it returns 88 per cent of advertising revenue back to Yahoo.
But there are still huge internal divisions within Microsoft over whether it should go after Yahoo again so soon after the end of its last bitter and unsuccessful fight for the search and webmail company in 2008.
One side is still set on the deal as a means to obliterate AOL as a competitor and create a strong web portal that can offer better products to audiences, advertisers and end users, a high-ranking Microsoft executive told Reuters.
Others oppose the deal on the grounds that Yahoo is not likely to produce growth worthy of the billions Microsoft would spend buying it.
“Yahoo’s value hasn’t grown in years, and some executives feel we should buy something that is more forward-looking,” said the executive who spoke on condition of anonymity.
Yahoo is expected to take months to decide its future, particularly since the board unceremoniously fired chief executive Carol Bartz. Microsoft and Yahoo could not be reached for comment last night.