Microsoft is leaking that they are willing to increase their Yahoo bid to as much as $33 per share, up from the original $31/share offer. That original offer, which included payment in Microsoft stock, has fallen in value to just $29.12/share.

This is a surprise since Microsoft has previously stated they wouldn’t increase their bid. Analysts largely expected them to either walk from the deal or go hostile.

$33 may not be enough to get Yahoo to move the knife away from their nose, however. The WSJ says they want $35 - $37.

The people say that it’s unclear what final approach Microsoft will take, but that discussions between the two companies have been stymied by a stark divide on price. Microsoft has said privately in recent days that it’s willing to offer as much as $32 or $33 a share, well above the $29.12-a-share value of its original cash-and-stock offer as of Tuesday’s market close, these people say. But major Yahoo shareholders have signaled they want in the range of $35 to $37 a share, with Yahoo’s management and board similarly shooting for an offer in the upper $30s, they add.

Crunch Network: CrunchBoard because it’s time for you to find a new Job2.0