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A deal to transfer Yahoo's 35 percent stake in Yahoo Japan to Softbank Corp, which already controls 42 percent of the unit, could come within a few weeks, people with knowledge of the discussions said.

If a deal is reached, Yahoo is likely to turn its attention to China, where it owns about 40 percent of prominent Internet company, Alibaba Group, the parent company of Alibaba.com, these people said.

It was not immediately clear what Yahoo wants to do with that stake.

Relations between Yahoo, Softbank and Alibaba have soured in recent years with Alibaba founder Jack Ma agitating to buy back Yahoo's stake in his company and Softbank founder and major shareholder Masayoshi Son openly attacking Yahoo's track record as an innovator and its approach to international markets.

Softbank also owns a stake in Alibaba.

"There is a triangular relationship between the three parties. Anything that happens with Alibaba has to involve all three parties," one of the sources said.

Shares of Yahoo Japan rose 3.7 percent in Tokyo after Reuters first reported the talks on expectations Softbank would pay a premium for the stake. Softbank, Japan's No.3 mobile phone operator, closed 3.6 percent weaker on worries over how it would finance the deal, while Alibaba.com dipped 1.2 percent in Hong Kong.

Softbank, in a statement released through the Tokyo Stock Exchange, said it was not in talks with Yahoo and had no intention to buy its stake in the Japanese business.

CASH INFUSION

A deal for Yahoo's stake in the mature Japanese market could bring a cash infusion that could be viewed favorably by investors, analysts have said.

Leaving the fast-growing and massive China market, where Western internet companies have largely failed to crack the tough regulatory regime and home-grown rivals such as Baidu Inc, would be more controversial.

An Alibaba spokesman declined to comment on Yahoo's intentions in China, although last September the company said it had "moved on" from buying back Yahoo's stake.

As well as owning Alibaba.com, the country's largest business to business online platform, Alibaba Group owns Taobao, China's largest consumer-oriented e-commerce site, and Alipay, China's dominant e-payment service.

Both Alipay and Taobao are unlisted, making valuing the businesses difficult, a factor analysts believe has prevented Yahoo and Alibaba from agreeing a deal. Estimates of the value of Yahoo's stake in Alibaba have ranged from $4 billion to $10 billion, meaning as much as 80 percent of Yahoo's market value is tied up in its Asian assets.