An Alibaba deal would end Yahoo's independent China operations

The US internet giant is in talks to buy 35% of Alibaba for $1bn (�557m), according to several reports.

If successful, the deal would mark the largest investment yet by a foreign firm in China's technology market.

A deal between the two would also challenge the Chinese operations of US online auction giant eBay. Alibaba offers similar auction site services.

Yahoo has already beaten off eBay in one East Asian market, having seen its online auction site in Japan become the main player.

Growing market

Yahoo and Alibaba are understood to have been in negotiations for several months, although neither company would comment on reports of a imminent tie-up in China.

As part of a deal, Yahoo would merge its Chinese search engine operations with Alibaba - signalling an end to the US company's independent presence in China, news agency Reuters said.

As well as its online consumer auction operations, Alibaba also offers a business-to-business e-commerce site, which links Chinese manufacturers with overseas retailers.

The Chinese government last month reported that the number of people in the country using the internet had reached 103 million, putting it second only to the US.

Leading overseas companies have recently been investing heavily in China's booming online market.

EBay paid $180m for Shanghai-based Eachnet and US web firm Interactivecorp - which owns Expedia - paid $168m for a majority stake in Chinese online retailer Elong.

And online book retailer Amazon bought Chinese rival Joyo for $75m.