Both the New York Post and the Wall Street Journal are reporting that sources say Microsoft and Yahoo were are talking again about how they might merge or cooperate.

To quote from the The New York Post it says:

Recent talks between Microsoft Corp. and Yahoo Inc. over how to band together betray increasing unrest at Microsoft over how to compete with Google Inc. and get in step with the booming online-advertising market.

Microsoft and Yahoo discussed a possible merger or other matchup that would pair their respective strengths, say people familiar with the situation. The merger discussions are no longer active, these people say, but that doesn’t preclude the two companies from some other form of cooperation.

If merger talks are revived, whether Microsoft and Yahoo could reach an agreement remains as much of a question as it did a year ago, when similar talks ended inconclusively. Microsoft has always steered clear of large acquisitions. Yahoo has about 11,700 employees and earlier this week had a market value of about $38 billion. Yahoo shares surged $2.80, or 9.9%, to $30.98 in 4 p.m. Nasdaq Stock Market composite trading on news of the talks, raising the company’s market value to around $42 billion Friday. Microsoft’s shares fell 41 cents to $30.56 on Nasdaq.