May 5 (Bloomberg) -- Alibaba.com Ltd., China's largest online commerce company, fell the most in three weeks in Hong Kong trading after Microsoft Corp. ended its bid to buy Yahoo! Inc., the biggest shareholder in the Chinese company's parent.

The Web company's shares fell 5.9 percent to HK$15.24 at the end of trading in Hong Kong, their biggest drop since April 10. The city's benchmark Hang Seng Index declined 0.2 percent.

Microsoft's May 3 announcement that it's walking away from its Yahoo bid spurred some investors to sell Alibaba shares as it's now unlikely the Chinese company will benefit from working with the world's biggest software maker, said Ivan Li, an analyst at Kim Eng Securities in Hong Kong. Yahoo owns 39 percent of the Hangzhou, East China-based parent, Alibaba.com Corp.

``Any synergies Alibaba could have gotten from working with Microsoft, if Microsoft bought Yahoo, are now off the table and so sentiment will be quite bad today,'' said Li, who rates Alibaba shares ``sell.'' ``There aren't any other potential positives to look forward to for Alibaba right now.''

Microsoft said it abandoned its bid for Yahoo after failing to agree on a price. The Redmond, Washington-based software maker, which in February offered to buy Yahoo stock at $31 apiece, said it raised its bid to $33 a share, while Yahoo demanded $37.

``Microsoft's bid to buy Yahoo had been positive for Internet companies in general, so the withdrawal of the offer may be negative in the short term,'' said Linus Yip, a strategist at First Shanghai Securities in Hong Kong. ``The impact on Alibaba may be more pronounced because of Yahoo's holdings.''

Management Independence

Alibaba Chairman Jack Ma and Chief Executive Officer David Wei declined to comment on the Microsoft-Yahoo deal today at the annual shareholders' meeting in Hong Kong.

Alibaba.com shares surged 14 percent on Feb. 4 after Microsoft first made its bid for Yahoo. They jumped 14 percent on March 19 after the Wall Street Journal reported that parent Alibaba.com Corp. was in talks to buy back Yahoo's 39 percent stake to ensure its management independence in case Microsoft succeeded in its acquisition.

``The talk of Alibaba buying back its shares from Yahoo was a boost, but with Microsoft walking away, that now also seems unlikely,'' said Kim Eng's Li.

Yahoo swapped $1 billion and its China unit for its stake in Alibaba.com Corp. in 2005. That agreement gave Alibaba the right to buy Yahoo's stake if the Sunnyvale, California-based company were to be taken over, according to a 2005 filing to the U.S. Securities and Exchange Commission.

The Chinese company had planned to exercise that right if Microsoft bought Yahoo, the Journal reported.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.netJohn Liu in Shanghai at jliu42@bloomberg.net

Last Updated: May 5, 2008 04:34 EDT