Adobe Systems shares surged 12% after the New York Times said Microsoft may work more closely with the company and possibly acquire it.
Microsoft chief executive Steve Ballmer recently met his Adobe counterpart Shantanu Narayen to discuss closer collaboration, the Times said.
The possibility of Microsoft acquiring Adobe in a discussion about whether the two companies should unite against Apple, highlights Microsoft's willingness to consider more radical tactics to counter Apple's success with the iPhone and iPad, according to the Financial Times.
Buying Adobe would give Microsoft the company's popular Flash software development tools, as well as mobile- phone features, said Bloomberg News.
Analysts said the deal would be difficult to execute because of Adobe's $15bn (£9.46bn) market value and regulatory concerns about giving Microsoft a monopoly.
Some analysts played down the significance of the meeting, saying company executives meet all the time, while others said the merger would make sense.
Adobe's software could augment Microsoft's .Net framework, they said, and help boost Microsoft's Windows Phone 7 challenge to Apple's iPhone and Google's Android operating system.
But according to US reports several sources in both companies have dismissed the rumours, saying no deal is imminent and the talks between the two company heads were merely part of a regular series of meetings to consider possible areas of co-operation.