SAN FRANCISCO - Yahoo's first-quarter results tread familiar ground as the Internet company's financial erosion triggered another round of layoffs and management promised better days ahead.

With its three-year slump worsening, Yahoo said Tuesday it will lay off nearly 700 workers. It is the first significant payroll purge since Yahoo hired Carol Bartz as its new chief executive in January, but marks the Sunnyvale-based company's third round of job cuts during the past 14 months.

Meanwhile, investors are hoping the challenges still facing Yahoo will persuade the company it is finally time to work out an Internet advertising partnership with Microsoft after more than two years of intermittent talks. Both companies would like to lessen Internet search leader Google's dominance of the online ad market.

In a Tuesday conference call with analysts, Bartz refused to comment on recent media reports about the Microsoft negotiations heating up again.

But the possibility of a Microsoft alliance, coupled with potential savings from the upcoming job cuts, helped lift Yahoo shares by 61 cents, or more than 4 percent, in Tuesday's extended trading after finishing the regular session at $14.38, up 72 cents.

Neither the lackluster first-quarter results nor the latest layoffs came as a surprise.

Analysts had already predicted Yahoo's earnings and revenue would sag as the recession made it more difficult to sell Internet ads. And hints about job cuts were leaked to the media last week.

The planned layoffs will affect 5 percent of Yahoo's 13,500 workers.