SAN FRANCISCO — Setting the stage for a possible bidding battle, Microsoft Corp. is mulling an investment in Facebook Inc. that would value the rapidly growing online hangout at $10 billion or more, according to a report published yesterday.

Citing unnamed people familiar with the matter, The Wall Street Journal said Microsoft is holding preliminary talks that could culminate in a $300 million to $500 million investment in Facebook, a Palo Alto, Calif., social-networking site founded just 3 1/2 years ago.

In exchange for the money, Redmond, Wash.-based Microsoft would receive up to a 5 percent stake in privately held Facebook, which has previously raised nearly $41 million from venture capitalists and individual investors.

Facebook declined to comment on the reported discussions as did Microsoft, which branded the report as "rumor and speculation." An outright sale of Facebook is considered unlikely.