Microsoft Corp does not expect to make acquisitions to help the company challenge Google Inc's dominance in the Internet search market, Chief Executive Steve Ballmer told Reuters on Monday.

No, I wouldn't expect it, he said when asked whether acquisitions would be part of the strategy. Microsoft recently agreed a search partnership with Yahoo! Inc after a long and unsuccessful struggle to buy the company.

You'll continue to see us work hard and invest in the marketing and the like, and of course we're trying to get the Yahoo deal through regulatory, he said after a lecture to Britain's CBI business lobby organization.

Ballmer also reiterated his opinion that global economic growth was likely to return slowly and at lower levels.

Things have come down. I see them staying down and slowly growing, he said in answer to a question from the audience, adding, however: I feel wholly unqualified with just a couple of years of undergraduate economics to answer the question.

Ballmer said information technology would play a key role in driving efficiency and productivity gains to help the world out of recession, while a joint study with industry research firm IDC predicted the industry would drive the creation of 5.8 million new jobs worldwide by the end of 2013.

Ballmer also said Microsoft was freezing its research and development budget, the world's largest, at $9.5 billion -- partly in order to preserve resources for the fight with Google.

CULTURAL REFORMATION

Microsoft, whose Windows operating system runs on almost nine in 10 of the world's PCs, suffered its first-ever drop in annual revenue in its fiscal year to end-June -- a decline of 3 percent, including a 17 percent drop in the fourth quarter.

It was like a cultural reformation for us, he said. We said: 'First, let's lock the R&D budget. Let's not necessarily grow it the way we might have.'

Let's make sure we keep the money we need to continue to establish us in new businesses, he said. We're trying to give Google a little competition in the search business. They've been trying to give us a little competition in some other ways.

Google has about 77 percent of the global Internet search market, according to industry tracker comScore's figures for July. Yahoo comes a distant second with 8 percent and Microsoft fourth with 3 percent, behind China's Baidu .

Microsoft had cash and short-term investments of $31.4 billion as of the end of June.

Under the 10-year deal with Yahoo, Microsoft's new Bing search engine will power queries on Yahoo's sites. In return, Microsoft will pay Yahoo 88 percent of revenue from advertisements generated from those sites.

In theory, that means Microsoft gets more traffic to refine its search technology and build up its ad base, while Yahoo gets revenue from search ads without the expense of managing its own search engine.

Bing has made inroads in the United States since its launch there four months ago, backed by a huge marketing campaign. But its U.S. share slipped by more than 1 percentage point to 8.5 percent in September, according to analytics firm StatCounter.

(Editing by David Cowell and David Holmes)

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