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SAN FRANCISCO, Oct 6 (Reuters) Web search leader Google Inc. is in talks to buy YouTube Inc., the world's leading Web site for video entertainment, for close to $1.6 billion, the Wall Street Journal reported on Friday, citing a person familiar with the matter.

According to the newspaper, the talks are at a sensitive stage and could break off. YouTube declined comment on the report. Google representatives could not immediately be reached.

YouTube was founded in February 2005 as one of dozens of Internet video start-ups. It has exploded in popularity since last November by letting users share short video clips -- both home videos and programming copied off television.

Rumors of a Google-YouTube deal appeared Thursday on the TechCrunch blog of Web start-up powerbroker Michael Arrington, who said such talk was circulating among Silicon Valley venture capitalists after months of speculation that YouTube was an acquisition target.

''YouTube is the hottest property on the Web, one that could be worth much more than $1.6 billion if monetized properly,'' said RBC analyst Jordan Rohan, adding he had no information on whether YouTube would be acquired. His calculation is based on combining YouTube's audience and Google's advertising prowess.

For Google, the acquisition of YouTube would thrust the Web search leader quickly into the emerging market for video advertising, where it has only a tiny foothold compared with Yahoo Inc. and various Web start-ups, Rohan said.

''Essentially Google can give less than 2 percent of its market cap and keep this platform out of the hands of everyone from Yahoo to Microsoft to Viacom,'' said Rohan.

''There is something to be said for that old playground game of 'keep-away,''' he said. ''Defense here matters.'' YouTube has asked for about $1.5 billion during talks with potential suitors in recent weeks, sources familiar with the matter told Reuters.

Google shares rose $8.69, or 2.1 percent, to close at $420.50 on the Nasdaq on Friday.

HOT PROPERTY MTV owner Viacom, still hurting after News Corp. elbowed it aside last year to acquire top social networking site MySpace.com, recently dodged questions on whether it had courted YouTube -- another of the most popular Web destinations for young people.

''It's a very good company,'' Viacom Chairman Sumner Redstone said in a TV interview with Charlie Rose on Wednesday.

YouTube reports serving about 100 million videos daily and has drawn scrutiny from major media companies for copyrighted material appearing on its pages without their consent.

YouTube commands a 47 percent share of the online video search market as of Sept. 30, compared with 22 percent for the MySpace video site and 11 percent for Google Video, according to Internet measurement firm HitWise Inc.

The site serves about 32 million visitors monthly and has about $11.5 million in venture capital financing from Sequoia Capital. A Sequoia spokesman was not available to comment.

Google has previously preempted rivals from striking deals that could threaten its dominance in key Web segments.

In December, Google agreed to pay $1 billion for a 5 percent stake in Time Warner Inc.'s AOL unit in a deal that expanded their advertising partnership.

Mark Cuban, an Internet investor and the outspoken owner of the Dallas Mavericks basketball team, told the Online News Association in Washington, D.C., that Google would be ''crazy'' to do a deal because of the legal challenges YouTube faces.

To control rampant copyright infringement on YouTube, Google would be forced to monitor what videos users upload to the site. ''Once you have to start monitoring, the whole business changes,'' Cuban said of the risk to Google.

Cuban sold his pioneering Web radio company Broadcast.com for $5.7 billion to Yahoo at the dot-com era's height in 1999.

REUTERS DKS RAI0153