The Huffington Post has denied it is in sale talks with Yahoo!, but has not ruled out a closer partnership discussions.

Last week Techcrunch quoted sources saying that the two companies were “in negotiations over a deep content partnership”, but added that Yahoo’s desired goal was to Huffington Post outright.

For Yahoo! which is attempting like AOL to reinvent itself as a content company it would represent a valuable, but expensive, prize. It is a site that holds a vast amount of premium content of the kind that Yahoo! could sell to advertisers.

Mario Ruiz, a spokesman for the Huffington Post denied the sale talk. He said it was “not in any discussions to sell the company”, but according to the New York Post declined to comment on a potential partnership.

According to the WSJ.com Digits blog,  James Pitaro, vice president of Yahoo Media, did not “explicitly deny Yahoo’s interest in buying the site”, but said “he was more focused on a recently launched partnership in which Yahoo News. This features content from HuffPo’s entertainment section.

It looks as if that partnership is about to get deeper. The speculation about the Huffington Post follows Yahoo! last week spending $100m buying cheap content firm Associated Content. There have also been rumours linking it to social media’s hottest buzz company Foursquare.

Both deals are designed to reverse the massive decline, as much as 25%, in visitor numbers Yahoo! has suffered as it has ceded dominance to Google and been outpaced by swifter content firms (like the Huffington Post among others) that have grown as Yahoo! declined.

It already has a search deal in place with Microsoft’s Bing and yesterday it cut more search jobs despite CEO Carol Bartz saying that the cut were over. In addition it has signed a deal with Facebook to allow users to interact with the social networking site from within Yahoo! It is another move represents further recognition that its days as a top internet destination are well behind it.

The cuts underscore Bartz’s determination to recast Yahoo! as a content firm. According to the Post she has a list of companies she would like to partner with or buy. The liberal blog and news site co-founded by Arianna Huffington in 2005 has become a web powerhouse branching out across the web making it an attractive and obvious target for Bartz.

If Ms Huffington did sell the price tag would be significant and far outstrip the $100m that Yahoo! paid for Associated Content. The Huffington Post raised $25m in December 2008 giving it a valuation of around $125m. At that time it had around five million uniques. It now has five times that traffic attracting generating in excess of 25 million uniques a month and has led the way with projects such as linking its news to social media and launching a Twitter edition on the its site.

It is on course to surpass The New York Times in terms of web traffic during 2010, and set to make $60m in revenues this year and $100m next year.

All of that could result in a price tag of between $400m and $550m. Such a high price tag has led to speculation that Yahoo is testing the waters with a content deal before it makes a move to stump up a very large amount of cash that would represent a large pay day for MS Huffington.

Other than the Huffington Post other hot content targets could include Nick Denton’s Gawker Media. His network of sites, including Gawker and Gizmodo, represent another rich seam of high traffic attractive content.

However, in cutting deals with any of the companies mentioned will not immediately solve Yahoo!’s central problem which is how do you form an identity on the web out of an increasingly disparate bag of sites?