SAN FRANCISCO (Bloomberg) - Yahoo! Inc.'s secret weapon in its effort to squeeze a higher offer out of Microsoft Corp. resides overseas in Asia's surging Internet market.

Yahoo has investments worth $13.8 billion in Alibaba.com Corp., parent of China's largest online trading site, and Yahoo Japan Corp. That accounts for almost one-third of the $31 a share Microsoft is offering. In a year, the value of those stakes may balloon 15 percent to $15.9 billion, according to analysts' average share-price estimates for the Asian companies.

Unlike the US search market, where Microsoft and Yahoo have been beaten down by Google Inc. in text advertisements, Asia is geared more toward graphical banner ads, where Google has less of a presence. In China, the world's second-largest web market, online trading between companies may almost quadruple to the equivalent of $1.05 trillion by 2010. Yahoo investors may benefit as Microsoft pays more to gain access to this growth.

"Alibaba is a good franchise in the fastest-growing Internet market," said Kevin Landis at Firsthand Capital Management in San Jose, California, which oversees $600 million and added to its Yahoo holdings last year. "Stubbornly, these Yahoo shares didn't respond to that. I think if you gave it time, they would."

In rejecting Microsoft this week, CEO Jerry Yang cited investments in Alibaba and Yahoo Japan as reasons the offer "substantially undervalues" Yahoo. Minority investments produced profit of $150.7 million last year, 23 percent of net income and 34 percent more than in 2006.

Legg Mason Inc. fund manager Bill Miller agrees. Mr. Miller, 58, said this week that his Baltimore-based firm, Yahoo's second-biggest investor with 6.3 percent of the shares, values them at $40 or more each. Mr. Miller, who declined to comment for this story, did not say how he came up with his calculations.

No competing bid has emerged. Yahoo is in talks to combine Internet operations with those of Rupert Murdoch's News Corp., according to a person with knowledge of the talks.

Yahoo spokeswoman Tracy Schmaler and News Corp. spokeswoman Julie Henderson declined to comment. Microsoft spokesman Bill Cox did not return calls.

Yahoo in 2005 swapped $1 billion and its China units for 39 percent of privately held Alibaba.com Corp. in Hangzhou. The initial public offering last year of its Alibaba.com Ltd. unit raised HK$13.1 billion ($1.68 billion), the biggest IPO for an Internet company since Google in 2004. Yahoo, in Sunnyvale, California, also owns one percent of the public company's shares.

Alibaba.com Corp. also owns web-auction site Taobao and online payment unit Alipay. Sales from Taobao's site more than doubled last year as rising incomes in China lifted the number of Internet users by 53 percent.

The amount of goods and services traded on the web by Chinese companies may increase to 7.54 trillion yuan ($1.05 trillion) in 2010, from 2.1 trillion yuan last year, according to Ping An Securities Co.

Stifel Nicolaus analyst George Askew in Baltimore valued Yahoo's holdings in Alibaba.com Corp. at $4.93 billion as of a week ago. With 33 percent control of Yahoo Japan and a 10 percent stake in South Korea's GMarket Inc., Yahoo's Asian investments equal $13.6 billion, or $9.74 a share, Mr. Askew said. The prices have increased this week.

"Yahoo's stronger position in Asia is one of the rationales for Microsoft's takeover bid," said Ivan Li, an analyst at Kim Eng Securities (HK) Ltd. in Hong Kong.

Yahoo has underperformed Alibaba and Yahoo Japan, in part because of disappointing sales. Through yesterday, Alibaba.com Ltd. had jumped 48 percent since its November 5 IPO. Yahoo Japan dropped 2.7 percent and Yahoo fell 4.4 percent.

Yahoo shares fell 32 cents to $29.66 in Nasdaq Stock Market trading. After a decline in Microsoft's share price since February 1, the blended value of its cash and stock offer is $29.01.

Alibaba.com Ltd. may rise 30 percent from Thursday's close to HK$25.89 in 12 months, according to analysts' average estimate compiled by Bloomberg. Yahoo Japan may gain eight percent. Assuming no change to Mr. Askew's estimates for the private components, that would bring Yahoo's Asian holdings excluding GMarket to $15.9 billion.

Microsoft, in Redmond, Washington, is pursuing Yahoo to bolster competition with Google in an online ad market that may double to $80 billion by 2011. Yahoo Japan, the country's most popular website, attracted 88 percent of local users in December, compared with 56 percent for Google, according to NetRatings Japan Inc. It also offers access to a mobile-phone market where more than half of subscribers surf the web.

The Asian properties would be a boon for Microsoft, whose Internet business there lags behind competitors, said Claus Mortensen, a Hong Kong-based analyst at researcher IDC. Microsoft handled 1.2 percent of search queries in Asia in December, compared with Google's 38.2 percent and 24.9 percent for Yahoo, ComScore said.

Display ads are 52 percent of the online market in Asia, according to IDC, compared with 20 percent for search. In the US, search accounts for 40 percent, versus 31 percent for display and video, said New York-based EMarketer Inc. Almost all of Google's $16.6 billion in sales last year came from search.

Microsoft faces challenges retaining Alibaba and Yahoo Japan clients wary of the world's biggest software maker, said JupiterResearch analyst Neil Strother.

"On paper it gives Microsoft a bit of a leg up," Strother said. "Can they hold onto customers or do the customers decide that Yahoo Japan or Alibaba have just become the same as Microsoft?"