UPDATE 2-Palm stock jumps after Harbinger reveals stake

* Falcone’s Harbinger reports 9.48 percent stake

* Palm shares rise as much as 10 percent (Adds background on Falcone)

BOSTON, April 14 (Reuters) - The share price of personal digital assistant manufacturer Palm Inc PALM.O jumped as high as 10 percent on Wednesday after hedge fund manager Philip Falcone reported a 9.48 percent stake.

Falcone’s New York-based Harbinger Capital owns 16 million shares in Sunnyvale, California-based Palm, according to a regulatory filing.

The stock closed at $5.32, up 3.1 percent.

Palm, which once dominated the market but has been surpassed by smart phones like the Apple's AAPL.O iPhone and Research In Motion RIM.TO BlackBerry in recent years, has hired bankers to explore several options, including the sale of the company, sources said this week.

News that the company might but itself up for sale already helped send its share price higher earlier this week.

Falcone, whose $825 million payout for last year ranks him among the hedge fund industry's best paid managers, has been selling off parts of his stake in The New York Times Co NYT.N. He once owned as much as 20 percent of the newspaper company's publicly traded shares.

A former star hockey player at Harvard University, Falcone won investing fame by betting against subprime mortgages in 2007 as his fund more than doubled.

He had previously been known as an activist investor willing to take on corporate managers after buying up large stakes in a company's stock, bonds or preferred shares. Big profits followed battles with Calpine CPN.N and Northwestern Corp but a position in bankrupt Granite Broadcasting did not pan out.

In 2008, huge mid-year gains dissipated thanks to wrong-way bets on oil prices and complications from the ban on short-selling major financial stocks. The fund ended with a double-digit loss.

Last year, Falcone gained over 45 percent, according to an investor in his fund.

Palm shares closed up 3.1 percent, or 16 cents, to $5.32 on the Nasdaq stock market. (Reporting by Svea Herbst-Bayliss. Editing by Robert MacMillan, Bernard Orr)