EU antitrust regulators are in touch with Microsoft Corp and Yahoo Inc about their search engine deal, a source familiar with the situation said, with the talks seen more as exploratory than indicating any competition concerns.

There are ongoing informal discussions between the European Commission and Microsoft and Yahoo on their search engine partnership, the source said on Tuesday, without giving further details.

Antitrust experts said it was too early to say if the European Union executive could proceed to a formal probe. Regulators could have begun with a formal probe, so the informal start could be seen as a good sign for the deal.

Microsoft confirmed discussions were taking place.

As we said when the agreement was announced, we anticipated that this deal will be closely reviewed in the United States and EU, and discussions in both geographies continue, said Microsoft spokesman Jack Evans. We remain hopeful the deal will close in early 2010.

Representatives of the Commission were not immediately available to comment.

Microsoft and Yahoo struck a 10-year Web search deal in July, seeking to challenge market leader Google Inc, which had 67.5 percent share of the worldwide search market in July, according to comScore.

By combining their search engines, Yahoo and Microsoft, the number two and three players, would hold roughly 30 percent of the U.S. search market, making their combined audience a more attractive place for marketers to spend their ad dollars.

Last week, U.S. antitrust authorities requested more documents from the companies, indicating the possibility of a months-long review. Both companies have said they do not expect an antitrust review to be completed until early 2010.

Yahoo shares were up 3.3 percent to $16.95 in afternoon trading on Nasdaq. Microsoft's stock was off 6 cents, or less than 1 percent, to $25.14.

It is also unclear whether the companies need approval from the European Commission or from national regulators in EU countries.

For high-profile cases which could raise complex issues, companies might want to get some reassurance from the Commission on whether there could be any competition concerns, said a Brussels-based antitrust lawyer who declined to be named.

Microsoft has expressed confidence that it can persuade regulators that a stronger rival for Google is in the best interests of the market.

(Additional reporting by Alexei Oreskovic in San Francisco; editing by Elaine Hardcastle, Tim Dobbyn and Andre Grenon)

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