Aug. 28 (Bloomberg) -- Google Inc., facing U.S. Justice Department scrutiny of its advertising partnership with Yahoo! Inc., will proceed with the agreement by early October, Chief Executive Officer Eric Schmidt said.

``We are going to move forward,'' Schmidt said today in an interview with Bloomberg Television in Denver. ``We are in the process of talking to the government. They've not indicated one way or the other how they're dealing with us.''

Google, the most popular search engine, is trying to pull off the deal amid concerns that it will give the company too much power in the $65 billion online advertising market. Senator Herb Kohl, a Wisconsin Democrat, asked last month whether the agreement will reduce Yahoo to ``nothing more than the newest satellite in the Google orbit.''

``We always worry a little bit, but we think our arguments are pretty strong,'' Schmidt, 53, said today. ``Yahoo has made it very, very clear they're going to take the best parts of their network and ours and combine them.''

The companies said in June that they would give the Justice Department 3 1/2 months to review the partnership, even though they indicated it wasn't legally necessary.

``We continue to cooperate with regulators,'' Google spokesman Adam Kovacevich said in an e-mail after the interview. ``Ultimately we have confidence that they'll be able to conduct their review within that time period and allow us to move forward.''

He declined to say what Google would do if the Justice Department moves to block the deal.

Microsoft Bid

The companies signed the agreement after a six-month long struggle by Microsoft Corp., the world's largest software maker, to acquire Yahoo for as much as $47.5 billion. Yahoo CEO Jerry Yang, who said the Google deal may add $800 million a year to sales, is seeking to boost Yahoo's share price after a tussle with investor Carl Icahn for board seats.

Google, based in Mountain View, California, rose $5.20 to $473.78 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have fallen 31 percent this year. Yahoo, down 16 percent this year, gained 28 cents to $19.65.

Under the agreement Yahoo will show Google ads, which command a higher price, along with promotions it sells on its own. Google will share a percentage of the revenue with Sunnyvale, California-based Yahoo.

Google isn't seeing much of an effect from the slowing U.S. economy because advertisers are devoting more of their budgets to Web-search links, said Schmidt, who was in Denver to attend the Democratic National Convention.

`Slow Period'

``The people who are advertising prefer targeted ads,'' he said. ``Google is not a good bellwether for how the economy goes as a whole.''

If the economy worsens, Google ``could be affected,'' he said.

``There's no question that the U.S. is in a slow period,'' Schmidt said. ``Whether it's a recession or not, I don't really know. We know Europe has some structural problems. Google has a major presence in both.''

Google is curbing its spending growth as it expands, Schmidt said. Expenses for research, marketing and general corporate purposes increased 36 percent last quarter to $1.64 billion, down from 85 percent growth a year earlier, according to Bloomberg data.

``We are going to increase our expenses in a slower way, which I think is just prudent,'' Schmidt said. ``We're a large enough company that this is a good time to do it.''

Schmidt, who has advised Barack Obama's presidential campaign on energy and technology policy, declined to endorse him or his opponent, John McCain.

``Both have pretty strong technology platforms,'' Schmidt said.

To contact the reporter on this story: Peter Cook in Washington at pcook6@bloomberg.net; Crayton Harrison in Dallas at tharrison5@bloomberg.net.

Last Updated: August 28, 2008 18:55 EDT