Morgan Stanley in Yahoo bid money

The investment bank, which suffered losses of $10.6 billion from the credit crunch and collapse of subprime mortgages in America, is in line for a bonanza of as much as $150 million if Microsoft is successful.

A successful deal would be one of the biggest takeovers in American corporate history and the largest in the technology sector.

It is a blow forGoldman Sachs, which advised Microsoft on its failed bid for Yahoo last year. A spokeswoman for Microsoft said Morgan Stanley was the sole adviser on today's proposed deal.

The approach from Microsoft ignited the 2008 mergers and acquisitions market, which many feared would fall flat as a result of a shortage of credit and the declining power of private-equity firms.

Would-be buyers are struggling to raise enough cash on the money markets to fund major acquisitions backed by credit.

KPMG recently warned that those with cash are nervous about splashing out vast sums in the current climate.

Stephen Barrett, chairman of corporate finance, said: "Where there is appetite and confidence, there are constraints such as a lack of funds or suitable targets. Where there is cash, there is nervousness, caution and a slight loss of appetite."

However, that has not put off Microsoft, which has watched the Yahoo share price plunge in recent months. The proposed deal will be one of the biggest for years, although analysts warned it was unlikely to spark a rush of M&A activity.

Previous high-profile deals in the industry include the $166 billion merger of AOL with Time Warner, which went down as one of the most disastrous deals ever struck after it racked up massive losses. Before the dot-com crash, MCI WorldCom bought Sprint for $129 billion to create a telecommunications giant to take on market leader AT&T.