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eBay and Yahoo! are cuddling up together to expand their businesses in the US. The internet giants have struck a major strategic partnership "designed to mutually benefit both companies by better serving their user, merchant, and advertising communities".

As part of the deal Yahoo! will become the exclusive third-party provider of all graphical advertisements throughout the eBay.com site. In return, Yahoo! has selected eBay-owned PayPal to be the "exclusive third-party provider of its online wallet" giving punters another method to pay for Yahoo! services.

The couple also plan to include Yahoo!'s search and mail functions on a co-branded version of the eBay toolbar, making it easier for net users to access key services. Plus, the pair plan to develop "click-to-call" advertising technologies so punters can call advertisers direct.

While the partnership is of interest in its own right, it has also fuelled speculation that it could signal the start of further consolidation in the industry.

Reports earlier this week suggested that Wall Street was buzzing with rumours about possible partnerships and mergers. Reuters flagged a report by analysts JP Morgan Chase that "a partnership or merger between eBay and Yahoo! is the most strategically feasible".

"A combined company would have the leading position in auctions, communications, payments, graphical advertising, audience reach and geographic breadth," it said. ®

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