Alibaba falls after Microsoft drops Yahoo bid

By Alison Leung and Joseph Chaney

HONG KONG (Reuters) - Shares in China's leading e-commerce firm Alibaba.com (1688.HK: Quote, Profile, Research, Stock Buzz) slid 6 percent on Monday after Microsoft Corp (MSFT.O: Quote, Profile, Research, Stock Buzz) dropped a bid for Yahoo Inc (YHOO.O: Quote, Profile, Research, Stock Buzz), Alibaba's key investor.

Yahoo owns 39 percent of Alibaba's parent, Alibaba Group, and Microsoft's failure to win Yahoo means potential business opportunities Alibaba might have had with Microsoft, such as in advertising or online trading, would not now likely materialize.

"The stock fall was largely expected as Microsoft dropped its bid for Yahoo, and there will be no news for Alibaba in the short term," said Antony Mak, sales director at DBS Vickers.

Shares in Alibaba, due to post quarterly earnings on Tuesday, closed down 5.9 percent at HK$15.24, their biggest drop in four weeks, underperforming the Hang Seng Index .HSI, which eased 0.22 percent.

"This is a highly volatile stock, and is driven by sentiment," said Francis Cheung, analyst at CLSA. "The news may have affected sentiment but has very little to do with what the company can do in terms of earnings."

Some analysts said the withdrawal of Microsoft's $33 per share bid for Yahoo would help remove some uncertainty as Alibaba Group had been touted as seeking investors to buy Yahoo's stake in a move to stop Microsoft getting access to Alibaba stock.

"The news is not so negative, but obviously investors are using this as an excuse to sell after a sharp rally last week," said Linus Yip, strategist at First Shanghai Securities Ltd.

Alibaba shares had jumped 12.5 percent to a 4-week high on Friday amid talk that Microsoft, the world's biggest software maker, may raise its Yahoo bid. But Microsoft gave up the chase on Saturday after failing to meet Yahoo's $47.5 billion price tag.