I don't believe you can link it to the UpdatePanel, but I'm sure you can attach it to the ajax initialization on the UpdatePanel and then show the RadAjaxLoadingPanel using its client-side api.
This article shows how to attach a method to the UpdatePanel's ajax initialize request event:
http://msdn.microsoft.com/en-us/magazine/cc163413.aspx#S2
RadAjaxLoadingPanel show/hide code:
http://www.telerik.com/help/aspnet-ajax/ajxshowhideloadingpanel.html
I hope that helps.