Yahoo's search engine advertising business suffered a bigger dent than expected in the latest quarter as the internet company wrestled with weakness across all parts of its operations and outlined higher investment in the months ahead.

Carol Bartz, chief executive, also warned that it was “too early to call” whether the online advertising markets had stopped shrinking, though she added: “Overall, we're seeing less fear in the marketplace.”

However, Ms Bartz dismissed suggestions that Yahoo had lost ground in search, particularly when compared with Google, which reported an increase in revenues in its own latest quarter. “Our search volume is holding fine,” she said, blaming the fall instead on “fewer click-throughs and fewer buyer intents” on the part of users.