Yahoo Inc is selling its 1.14 percent stake in Chinese Internet marketplace Alibaba.com for about $150 million, nearly two years after the company went public.

Yahoo still holds a 40 percent stake in the unlisted parent company, Alibaba Group, and reiterated in a statement on Monday that it believes the investment is an important, long-term way to participate in the China market.

Speculation about whether Yahoo planned to unwind its ties with Alibaba arose after Jerry Yang stepped down as chief executive of the U.S. Internet company.

Yahoo paid more than $1 billion in 2005 as part of its investment in Alibaba Group, which was co-founded by Chinese entrepreneur and former English teacher Jack Ma. Yang, a native Taiwanese, was a strong supporter of the deal and used to travel frequently to China and appear with Ma.

Yahoo regularly evaluates its financial investments and the value of its 1 percent direct IPO investment in Alibaba.com has increased substantially. This increase is why Yahoo sold this financial position, Yahoo said, noting that it would result in pretax proceeds of about $150 million.

Yahoo is selling 57.48 million shares of Alibaba.com at HK$19.80-20.30 each, according to a term sheet obtained by Reuters on Monday. The price range represents a 4 percent to 6.4 percent discount to the stock's closing price of HK$21.15 on Monday.

After dropping steadily in 2008, Alibaba shares have come charging back this year, nearly quadrupling since January.

Analysts said Yahoo's move would put pressure on Alibaba.com's stock, amid signs that its valuation has stretched well beyond its peers.

I think it is negative for the share price not just because this is a profit-taking activity, but it reflects some heightened risks (they may have) about the fundamentals of the business, said Steven Liu analyst with DBS Vickers.

Despite Yahoo's move, analysts did not think the company was changing its strategy in China, the world's largest Internet market by users.

Carol Bartz, who succeeded Yang as CEO, has been clear that the way she wants to play China is through Alibaba, said Sanford Bernstein analyst Jeff Lindsay.

Bartz doesn't want to get into operating a business in China itself, Lindsay added. It's too expensive, too much of a drain on capital.

Under the 2005 deal, Yahoo handed over exclusive rights to the Yahoo China brand to Alibaba Group. While the Yahoo China site has struggled to gain share against Baidu.com, Alibaba Group owns other attractive units including the fast-growing Chinese online auction site Taobao.

Alibaba Group is one of the dominant players in China and is still showing strong growth, so Yahoo wants to be careful about selling too early, said Kaufman Brothers analyst Aaron Kessler.

With more than $3 billion of cash and short-term securities, Yahoo doesn't need the cash, Kessler said.

And analyst said the illiquid nature of Yahoo's investment in the Alibaba Group would also make any efforts to sell it extremely complex. Not only do you have to find a buyer, but you'd have to make sure the Chinese government will approve it, said Cowen & Co analyst Jim Friedland.

Alibaba.com raised $1.49 billion in its October 2007 IPO in Hong Kong, pricing the issue at HK$13.50 per share, with Yahoo buying a portion of the offering at the time.

Ma also sold 13 million of his shares, or less than 5 percent of his total direct and indirect holding, in the company for about $35 million last week.

(1=HK$7.75)

(Additional reporting by Melanie Lee in Shanghai, and Donny Kwok, Alison Leung and Michael Flaherty in Hong Kong; Editing by Chris Lewis, Simon Jessop and Steve Orlofsky)

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