"When we announced our advertising agreement with Yahoo! in June we agreed to delay its implementation until October to give regulators time to look at the details," Google said in an email statement.

"As we are still in conversation with the Department of Justice we have agreed to a brief delay in implementing the agreement while those discussions continue."

The proposed online advertising alliance could be used to show that politicians and regulators blamed for letting financial markets self-destruct are now better watching out for people's economic interests.

"You hook up Google and Yahoo and you've effectively created a lockout monopoly and regulators are not going to have a good sense of humor," analyst Rob Enderle of Enderle group told AFP.

"Right now, if you are a company making lots of money you don't want to piss off any of the regulators. They want to showcase that there is a new sheriff in town. Even oil companies aren't safe."

Both California Internet titans have defended the ad pact on Capitol Hill and in online statements.

Microsoft senior vice president and general counsel Brad Smith has openly argued that the tie-up would crimp competition and give Google "unprecedented" control of the gateway to the Internet.

"If search is the gateway to the Internet, and most believe that it is, this deal will put Google in a position to own that gateway and the information that flows through it," Smith told a Senate Judiciary subcommittee in July.

The deal would put Google technology to work targeting ads posted next to results on Yahoo search pages.

Smith said the tie-up would give Google "an unprecedented level of control over advertising for search on the Internet -- up to 90 percent potentially of all search ads."

The result, he said would be higher prices for advertisers, and "put Google in control of the gateway to the Internet ... raising significant privacy implications."

"That's just plain wrong," Yahoo president Sue Decker wrote in an online posting titled "Myth busting and the Yahoo-Google agreement."

"It's simply a contract that gives Yahoo the right, but no obligation, to show Google AdSense ads on Yahoo's own network."

Eleven California state political leaders are urging US regulators not to interfere with the proposed tie-up between Google and Yahoo.

The legislators, from the state where both the Internet firms are based, signed a letter warning US Attorney Michael Mukasey that Internet market growth and innovation "could be stifled" by blocking the Google-Yahoo alliance.

"We are deeply concerned that the Department of Justice may be considering a preemptive lawsuit to block Yahoo's non-exclusive online advertising agreement with Google," they said in the letter.

"If such action were taken, we believe such an unprecedented suit could detrimentally affect the online advertising market and e-commerce."

Meanwhile, Senate Judicial Subcommittee chair Senator Herb Kohl has pledged close scrutiny of the deal and reportedly urged the DOJ to intervene if it looks like a Yahoo tie-up helps Google dominate online advertising.

"It's dead for now and for the foreseeable future," analyst Rob Enderle predicted.

"Anyone doing something seen as unfavorable to the consumer is going to be pounded hard, even if just to make it look like Congress and the (presidential) administration have their eye on the ball."

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