Speculation is rife on Wall Street that a big internet deal or alliance is in the works, with Google, Yahoo, eBay or Microsoft as possible partners - and a Yahoo-eBay partnership is seen as most likely.

"A partnership or merger between eBay and Yahoo! is the most strategically feasible," a report authored by analyst Imran Khan and the JP Morgan Internet team said. " A combined company would have the leading position in auctions, communications, payments, graphical advertising, audience reach, and geographic breadth," the report added.

Silicon Valley insiders, high-tech bankers and financial analysts are giving new credence to potential merger deals, which fly in the face of common wisdom that the internet's rapid growth has always outweighed the logic of consolidation.

But internet growth is slowing and competition among the biggest companies - Google, Yahoo, eBay and Microsoft - is intensifying.

EBay stock is down 30 per cent on the year. Yahoo is off 20 per cent and Google down ten per cent.

Google, which nearly doubled its revenues last year, is expected to grow 62 per cent this year. EBay is seen growing 30 per cent, down from 50 per cent two years ago, and Yahoo's growth is slowing at a similar pace.

EBay spokesman Hani Durzy said the company works very closely with all the major Web search providers - Google, Yahoo and Microsoft - but he declined to comment on any potential Yahoo tie-up.

EBay is one of the world's biggest buyers of Web search terms. It manages a portfolio of 15 million keywords on different search sites aimed at wooing bidders.

"We don't comment on rumors and speculation," Durzy said. "We are talking to Yahoo and other companies all the time as part of our normal course of business."

Yahoo was not immediately available to comment.

The 56-page JP Morgan report weighs other scenarios, including the possibility that Microsoft's MSN internet unit would strike a partnership with Yahoo. Google is viewed as likely to sit out big mergers and continue to go it alone, Imran argues, a view that many Wall Street analysts share.

Investors worry that gains by these companies are likely to come at the expense of one another, rather than through Internet expansion, driving shares down this year.

Microsoft shares are off 12 per cent so far in 2006, hit by product delays as well as a recent move by the company to step up investment to better compete with Google and Yahoo.

Market share gains by Google are most frequently said to be driving the talk of partnerships or mergers.

On May 3, the Wall Street Journal newspaper carried a story that Microsoft's MSN unit was planning a stop-Google strategy by seeking to buy a stake in Yahoo.

Yahoo chief executive recently Terry Semel confirmed that his company had been approached by Microsoft to buy a piece of Yahoo's search business. He ruled out a deal for what he viewed as a centerpiece of Yahoo's strategy to sell Web advertising.

"I will not sell a piece of search - it is like selling your right arm while keeping your left; it does not make any sense," Semel said in a public forum in New York where he was interviewed by The New Yorker magazine writer Ken Auletta.

He dismissed an outright merger between Microsoft and Yahoo, saying, "That conversation has never come up." "For me the most interesting alignment would be putting together Yahoo and eBay," said analyst Scott Devitt of brokerage Stifel Nicolaus, but he cautioned: "These things tend to be discussed often and rarely occur."

The strengths of Yahoo and eBay are seen as complementary, with Yahoo in media and eBay in e-commerce. Yahoo's foreign strength is in Asia and eBay's is in Europe.

The most compelling scenario is an alliance where eBay uses Yahoo search to drive consumers to eBay auctions, Devitt said.

In return, Yahoo could take advantage of assets such as eBay's PayPal online payments franchise and the vast Skype Web telephone audience that eBay has acquired.

EBay must tread carefully, however, so that it does not cut off ties to Google. As the world leader in Web search, eBay depends on Google search referrals for an increasing amount of its audience.

"I don't particularly find eBay in a position of power," Devitt said.