Yahoo shares sank as low as (US)$11.65 a share on Friday, in the wake of the death of the partnership deal with Google and in the face of confirmation from Microsoft (MS) CEO Steve Ballmer that MS is no longer interested in acquiring Yahoo!

“Look, we made an offer, we made another offer. It was clear that Yahoo didn’t want to sell the business to us, and we moved on,” Ballmer told reporters, while in Australia to address that country’s Committee for Economic Development. “We are not interested in going back and re-looking at an acquisition… I don’t know why they would be, either, frankly.”

After Google walked away from the deal to cooperate with Yahoo! on search and ads early last week, Yahoo! CEO Jerry Yang literally hung a ‘For Sale’ sign on his company and minced no words suggesting that MS should buy it.

When MS’s Ballmer killed that hope, investors apparently lost hope as well — and Yahoo! shares plummeted to about one third of the value they represented when MS first made its unsolicited and (at that time) unwelcome offer to buy Yahoo! last spring.

What happens next is anybody’s guess. Market watchers say they believe MS still still does covet Yahoo!, but Ballmer wants to make Yang sweat a bit before re-opening acquisition talks. Others say Ballmer’s rejection of Yang’s overture last week was calculated to drive share prices down making it possible for MS to buy Yahoo! at a fraction of its actual, functional value.

Stay tuned…