(Adds disclosure from Pickens about investment)

By Dane Hamilton

NEW YORK, May 20 (Reuters) - Third Point LLC, a $5.7 billion hedge fund headed by activist Dan Loeb, has recently accumulated a stake of over 5 million shares in Yahoo Inc (YHOO.O: Quote, Profile, Research) and is supporting investor Carl Icahn's proxy battle, a source familiar with the matter said on Tuesday.

Third Point, which held 1 million shares in Yahoo as of March 31, may build a stake of up to 10 million shares in the company, the source said.

Icahn's proxy contest, launched last week, is aimed at pressuring Yahoo to agree to be sold to Microsoft. The software maker broke off talks earlier this month after Yahoo rejected its offer to buy the company for $47.5 billion, or $33 per share, but the companies said Sunday they have revived talks.

Another investor said he was backing Icahn. Oil investor T. Boone Pickens told broadcaster CNBC he has acquired 10 million shares in Yahoo, saying: "(Icahn) jumps in first, I jump in behind him."

For his part, Loeb "strongly supports Icahn and supports his slate and thinks that he is shining a bright light on the botched process at the Yahoo board in negotiating the deal with Microsoft," said the source, who requested anonymity because Loeb's position has not been publicly disclosed.

Loeb, known for his acerbic letters to senior officials of companies he deems to be underperforming, believes Yahoo should be sold to Microsoft.

"They haven't laid out a game plan that gets you to the value of $33 to $34 per share on a stand-alone basis," this source said.