Google revenue up 31%, profit up 26%

Google said revenue increased 31% as Web searchers kept clicking on ads, and profit rose 26% as the company slowed its hiring and cut back on capital expenses.

Its shares, which had lost nearly 20% in the last month, gained 4% to $353.02 then surged an additional 10% in after-hours trading. The stock had hit a three-year low of $309.44 earlier in the day.

"It was just the shot in the arm that investors needed," Sanford C. Bernstein analyst Jeffrey Lindsay said.

Wall Street had lowered its expectations in recent weeks, worrying that the financial crisis that was punishing other Internet companies would spread even to the search market. The highly targeted form of advertising is believed better suited for weathering a slowdown in consumer spending than others.

Net income rose to $1.35 billion, or $4.24 a share, from $1.07 billion, or $3.38 a share, a year earlier. Excluding costs such as stock-based compensation, profit was $4.92 a share. Revenue climbed to $5.54 billion from $4.23 billion a year earlier.

In the U.S., Google fielded 63% of online searches in August, double the combined market share of its two closest competitors, Yahoo Inc. and Microsoft Corp. The spreading financial crisis is expected to hurt the Internet advertising market as businesses large and small cut spending or disappear altogether.

Yahoo shares surged 10.5% to $12.99 on Thursday after Microsoft Chief Executive Steve Ballmer suggested that his company would consider renewing discussions with Yahoo over a search partnership. A Microsoft spokesman said later Thursday that the two companies were not in discussions, adding, "Microsoft has no interest in acquiring Yahoo."

Microsoft had offered as much as $47.5 billion this spring to buy Yahoo to compete more effectively against Google. Yahoo spurned the offer and struck an advertising partnership with Google.

Google CEO Eric Schmidt said he was unaware of the comments.

The spreading financial crisis has hammered the stocks of many Internet companies. Schmidt described the current economic predicament as "uncharted territory."