May 8 (Bloomberg) -- Google Inc., owner of the most popular Internet search engine, said it could arrange a partnership with rival Yahoo! Inc. in a way that would ease regulators' antitrust concerns.

Comments by Chief Executive Officer Eric Schmidt hinted at the chance of a broad deal between the Internet companies after Yahoo last month ran some of Google's ads next to search results in a two-week test. The two are exploring a new agreement, people familiar with the talks said this week. Co-founder Sergey Brin said Google has no new agreement to announce today.

The test gave Yahoo more options amid takeover talks with Microsoft Corp., Brin told reporters at the company's headquarters in Mountain View, California, where shareholders gathered for their annual meeting. Microsoft backed out of the discussions last week.

``We believe in companies having choices about their destiny,'' he said. ``We want to support their ability to have choice.''

An agreement would help Sunnyvale, California-based Yahoo boost revenue. Google made as much as 70 percent more in sales from each Internet query at the end of last year, Yahoo said in March.

When asked if Google is still working with Yahoo, Schmidt said that while the test had ended, the companies are ``very friendly.'' He refused to say more.

Government Review

The U.S. Justice Department is reviewing the test, Google said in April. The Senate Judiciary Committee would examine any formal partnership between Google and Yahoo, said Chairman Herb Kohl, a Wisconsin Democrat.

Yahoo was able to gain ``a lot of insights'' from the program, and the two companies aim to work as broadly as they can, Brin said.

Microsoft CEO Steve Ballmer said in a May 3 letter to Yahoo CEO Jerry Yang that a Yahoo-Google partnership would hurt competition and choice in the online advertising market. Such a deal would effectively let Google set prices for key search terms, he said.

``It would simply look like Google is acquiring additional market share,'' said Rob Enderle, president of the research firm Enderle Group in San Jose, California. The move may prompt the Justice Department to examine Google more closely in the future, he said. ``That's one of the rocks in Google's road going forward.''

Google rose $4.01 to $583.01 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have fallen 16 percent this year.

Microsoft's Withdrawal

Microsoft, the world's largest software maker, withdrew its $47.5 billion takeover bid for Yahoo on May 3 after the companies failed to agree on a price.

Google repeatedly said the offer would hurt competition on the Internet. Schmidt said today that the purchase would have given Microsoft ``extreme'' market share for some Internet services. The e-mail and instant-messaging services offered by Microsoft and Yahoo are among the most widely used on the Web.

``It would be bad for the Internet,'' Schmidt said. ``We're happy that's not going to happen.''

Schmidt said he was surprised that Microsoft walked away from buying Yahoo. He said he didn't know if Microsoft would mount another bid.

``You never say never in this business,'' he said. ``I have no more knowledge than you.''

Investors rejected two shareholder proposals at the annual meeting. The first, put forward by the Office of the Comptroller of New York City and St. Scholastica Monastery, called for Google to avoid censoring information on the Web or storing data that could identify individual users in certain countries.

The other proposal, by Harrington Investments Inc., asked Google to create a human-rights committee. Harrington makes socially responsible investments, according to its Web site.

Brin abstained from voting on the shareholder proposals.

``I agreed with the spirit of both,'' Brin said. ``Directionally, the two proposals were correct.''

To contact the reporter on this story: Jonathan Thaw in San Francisco at jthaw@bloomberg.net

Last Updated: May 8, 2008 18:40 EDT