Yahoo Japan shares down after Microsoft deal bust

TOKYO (Reuters) - Shares in Yahoo Japan (4689.T: Quote, Profile, Research, Stock Buzz), owned one-third by Yahoo Inc (YHOO.O: Quote, Profile, Research, Stock Buzz), fell as much as 3.5 percent on Wednesday after Microsoft Corp (MSFT.O: Quote, Profile, Research, Stock Buzz) withdrew a $47.5 billion offer for the U.S. Internet company.

Shares in Yahoo Japan, in which Japanese telecoms and Internet group Softbank Corp (9984.T: Quote, Profile, Research, Stock Buzz) has a 41 percent stake, were down 2.4 percent at 46,100 yen as of 0210 GMT.

It was the first chance for the Japanese market to react to the news after it was closed on Monday and Tuesday for national holidays.

Microsoft on Saturday sweetened its initial $31 per share offer for Yahoo Inc to $33, but then withdrew from talks when Yahoo Chief Executive Jerry Yang dug in for a price of $37.

Analysts have said a successful Microsoft bid for Yahoo could slow the growth of their common rival Google Inc (GOOG.O: Quote, Profile, Research, Stock Buzz) in Asia, where the world's biggest search engine still lags local players.

The failed deal leaves the online advertising market wide open to Google's expansion.

Microsoft's money and pool of researchers were huge attractions for cash-strapped Softbank and Yahoo Japan, which shares some of Yahoo Inc's search technology, as they seek to cement Yahoo Japan's dominant position in the country.

While wary of Microsoft control in locally managed businesses, Yahoo Japan could have taken advantage of Microsoft's scale to lower marketing costs and help it tap Microsoft's resources to make searches faster, analysts say.

Shares in Softbank, which also owns a 3.9 percent stake in Yahoo Inc, were flat at 2,130 yen, while the benchmark Nikkei average .N225 was up 0.9 percent.

(Reporting by Sachi Izumi; Editing by Chris Gallagher)