San Francisco - Microsoft CEO Steve Ballmer on Wednesday ruled out a new takeover bid for troubled web portal Yahoo, but stressed that the software giant was still interested in partnering with Yahoo on search-related products.

Ballmer's comments to a meeting of Microsoft's shareholders were the first from the company since the announcement Monday that Jerry Yang was stepping down as Yahoo CEO. That move was seen as raising the chances for a Microsoft buyout since Yang had been the company's staunchest opponent of the deal that valued Yahoo at 47.5 billion dollars - more than three times what it is now worth.

The comments by the Microsoft boss sent Yahoo's shares plunging by as much as 20 per cent after they had rallied on news of Yang's move.

"We thought we had something that made sense. But it didn't make sense to them. We've moved on," said Ballmer at Microsoft's annual shareholders meeting. "Let me be clear. We are done with all acquisition discussions with Yahoo."

However he stressed that a partnership between Microsoft and Yahoo in the internet search market is "an interesting possibility." Such an alliance would help the companies challenge Google, which dominates the US online advertising market that is expected to grow 25 per cent this year.