Yahoo's share price ended trading yesterday on the US Nasdaq tech exchange 3.3% higher, after having hit a six-month high at one stage.
According to unconfirmed reports, Alibaba and private equity firms Blackstone and Bain Capital are prepared to pay up to $20 per share for Yahoo, up on Thursday's share price of $16.23 and valuing Yahoo at $25bn (£16bn).
Chinese internet firm Alibaba, in which Yahoo owns a 43% stake, did not confirm the speculation, but said that it was weighing up the options.
"Alibaba Group has not made a decision to be part of a whole company bid for Yahoo," said John Spelich, a spokesman for the firm.
Alibaba and Yahoo came together in 2005 after Yahoo bought the 43% stake for $1bn, but relations have soured in recent years and Alibaba has tried to buy back its stake.
Analysts believe that Alibaba's aim with the Yahoo bid is to get back full control over its own company.
Alibaba boss Jack Ma has made no secret of his desire to buy back the stake, but there is scepticism over how feasible the deal may be.
Yahoo sacked its chief executive Carol Bartz in September after the board ran out of patience while waiting for a turnaround in fortunes for the company, which has fallen behind in recent years to competition from Google and Facebook.
In contrast, Alibaba has grown strongly in the Chinese internet market, which is the biggest in the world with more than 500 million users.
However, a takeover bid for Yahoo is far from certain, as shares in the firm were double their present value in 2008 when Microsoft made a $46bn offer for the firm, which was rebuffed by the Yahoo board.
Microsoft is rumoured to be preparing a fresh takeover move for Yahoo involving the software giant taking a lead role alongside multiple other bidders.