Software giant Microsoft has dropped its three-month-old bid to buy internet firm Yahoo because the two sides cannot agree on an acceptable sale price.

Microsoft chief executive Steve Ballmer formally withdrew the offer in a letter to Yahoo chief executive Jerry Yang.

Mr Ballmer said Microsoft had raised its original offer from $44.6bn to $47.5bn (£24.1bn) - $33 per share.

But he added that Yahoo had insisted on at least $53bn, or $37 a share - more than Microsoft was prepared to pay.

The software giant had wanted to do a deal to be able to compete with Google, which dominates the lucrative market for internet advertising.

This market was worth $40bn in 2007 and is predicted to double to $80bn by 2010.

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