Microsoft Corp. intensified talks with Yahoo Inc. as it may raise its original $31-a-share Friday in a last-minute effort to reach a friendly agreement, according to media reports.

The new offer will surpass the current value of Microsoft's cash-and-stock bid of $29.40, according to Bloomberg, citing sources familiar with the matter.

Yahoo shares rose 7 percent on news of the accelerated talks.

The talks may break an impasse between the companies and prevent Microsoft from pursuing a hostile takeover of Yahoo, the second most popular Internet search engine. Investors had feared Microsoft would walk away from the unsolicited bid, now worth $42.2 billion, or launch a hostile takeover battle.

The software maker had set a deadline for Yahoo that passed last Saturday. Microsoft would use the takeover to boost competition against Google Inc., who is currently the leader in the $41 billion online advertising market.

Representatives of both companies could not be reached for comment.

Yahoo had said it deserved a higher bid considering its rank in the U.S. search market and its Asian operations.

Speaking to an assembly of Microsoft employees at its Redmond, Wash., headquarters Thursday, Microsoft Chief Executive Steve Ballmer said that he would walk away from the purchase before he overpays for Yahoo.

I know exactly what I think Yahoo is worth to me, exactly,'' Ballmer said in a meeting with employees, according to Microsoft spokesman, Frank Shaw.

I won't go a dime above, and I will go to what I think it's worth if that gets the deal done.''

Yahoo shares climbed 6.9 percent, or $1.86, to $28.67 at the close of trading on Friday on the Nasdaq Stock Market. Microsoft shares closed down 19 cents, or 0.7 percent, to $29.21 on Nasdaq.

Steve Ballmer Microsoft Google NASDAQ OMX Group