CARLSBAD, California (Reuters) - Yahoo Inc Chief Executive Jerry Yang said on Wednesday a potential deal with Microsoft has tremendous power, but the software giant appears no longer interested in a full merger.

In his most public comments to date about his thinking on the four-month-old, on-again, off-again Microsoft merger saga, Yang signaled his company remained open to a potential deal, but said Microsoft had ruled out a merger for now.

Earlier this month, Microsoft walked away from a proposal to acquire Yahoo for $47.5 billion, or $33 per share, after Yahoo rebuffed its offer, saying it would only settle for $37 a share. "We did not walk away from that proposal. Microsoft did," Yang said during an on-stage interview at the D: All Things Digital conference taking place near San Diego on Wednesday. He said he had felt a combination with Microsoft would have had a "tremendous amount of power."

In mid-May the two companies said they had begun discussions on an unspecified deal that is short of a merger.

"Microsoft is no longer interested in buying the company, and we are talking about other things. We definitely have to understand what they're proposing...they clearly have an interest in Yahoo, and we need to understand more," Yang said.

Last week, a source familiar with the latest round of discussions said Microsoft has proposed buying Yahoo's search business and taking a minority stake in the Web pioneer, but has stopped stopping short of reinitiating full merger negotiations.

As part of such a deal, Yahoo would sell its Asian assets including significant minority stakes in Yahoo Japan and China's Alibaba Group, while Microsoft would buy a chunk of what remains of the company, the source said.

In an on-stage interview at the "D" conference on Tuesday, Microsoft Chief Executive Steve Ballmer suggested discussions had broken down largely over price. "It became clear there was a difference between the bid and ask," he said, using stock trader terms.

In its original unsolicited takeover offer in late January, Microsoft offered $31 a share in a half-cash, half-stock bid, to buy Yahoo, which valued it at $44.6 billion. Yahoo responded by saying it was open to a deal but the offer was too low.

Ballmer repeated on Tuesday that Microsoft had "moved on" but stopped short of saying the mating dance between Microsoft and Yahoo was over. "We are not rebidding for the company," he said, but added: "We reserve the right to do so."

In the Wednesday interview conducted by Wall Street Journal technology columnist Walt Mossberg, Yang said a merger with Microsoft would involve a variety of issues beyond price. He said discussions between the two had never thoroughly explored such non-price hurdles, including regulatory issues.

Yahoo President Susan Decker, appearing alongside Yang on stage, said price had always been the biggest barrier to reaching agreement on a deal with Microsoft.

"We never got through the price door ... once we could have gone through it, then other issues could have been discussed."

Yang argued a competing deal between Yahoo and Google made sense but no deal had been reached. Last month, the companies conducted a two-week test where Yahoo hired Google to run advertising sales alongside Yahoo search results.

"It makes a lot of sense, but if we do something, we will talk about it," Yang said, adding the "level at which Yahoo can fully partner with Google has not been fully appreciated by the marketplace."