UPDATE 1-Australia's MYOB says key shareholder gives in to KKR buyout offer

(Adds details, background on KKR offer)

April 3 (Reuters) - Australian accounting software maker MYOB Group Ltd on Wednesday said its second-biggest shareholder has agreed, with reservations, to vote in favor of U.S. private-equity firm KKR & Co Inc's A$1.6 billion ($1.14 billion) takeover bid.

Manikay Partners, which Refinitiv data showed owns 16 percent of MYOB, said in a letter to the company it was disappointed with the software maker's continued recommendation of KKR's marked-down A$3.40 per share bid in the face of improving market conditions.

The U.S. hedge fund, which data showed had bought shares as recently as last month, had been gunning for a price increase by KKR.

KKR in October initially offered A$3.70 per MYOB share but later raised the price to A$3.77, prompting the software firm to grant KKR access to its financial records to conduct due diligence. KKR then dropped its offer to the current price in December.

A spokesperson for KKR declined to comment on Wednesday.

In its letter, disclosed in a MYOB statement, Manikay Partners said it felt it would be "better served" allocating its capital elsewhere.

MYOB shareholders will vote whether to accept KKR's offer on April 17.

($1 = 1.4092 Australian dollars)

(Reporting by Nikhil Kurian Nainan in BENGALURU; Editing by Muralikumar Anantharaman and Christopher Cushing)