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It seems Microsoft-Yahoo deal is back on track as they both are engaged with each other over possible merger.

There were several reports Friday of intense negotiations, with Microsoft raising its original offer while Yahoo holds out for more.

Yahoo shares jumped nearly 7 percent Friday on expectations that a deal to sell the Sunnyvale Internet company to Microsoft could be announced as soon as this weekend.

Both companies are making last-minute efforts to seal a deal before Microsoft takes its Yahoo bid hostile or abandons it altogether.

Anthony Sabino, a New York securities lawyer said:

Microsoft Chief Executive Steve Ballmer is being astute in taking a more diplomatic approach rather than going hostile and mounting a takeover effort. Microsoft doesn’t want to appear as the evil empire.

According to Wall Street Journal Microsoft had upped its offer from $31 to $33 a share, while Yahoo was demanding $35 to $37 a share. The New York Times said Microsoft had increased its bid by “several dollars” a share. Both reports quoted anonymous sources.

With Google grabbing an increasingly large portion of the online advertising market, Microsoft needs Yahoo to get a piece of the action soon before Google controls it all.

Microsoft issued a statement that any agreement between Yahoo and Google “would consolidate over 90 percent of the search advertising market in Google’s hands,” creating a less competitive market.

A number of stock analysts have predicted a deal at $34 to $35 a share.

Sources familiar with the situation said “talks are at a sensitive stage and a deal is not certain”.