As usual, my online friend Gerard was the first to chime in with the right answer. Here is what Gerard said in his comment:
There are three well known musicians sitting in the making of this record/LP; Al Kooper, Todd Rindgren and last but not least George Harrison. If you listen to this number you can hear the guitar of George playing and strumming in Day After Day.
While Gerard was correct, Wikipedia identifies a few more musicians that participated and provides a few more details about George’s role in the following excerpt from its Badfinger article:
In 1971, the group rented Clearwell Castle, in Gloucestershire; living and recording there. They finished recording their third album, again with Emerick as producer, but the tapes were rejected by Apple. Harrison took over as producer in spring of 1971, but later pulled out of the project because of his Bangladesh commitments; the album was then completed by Todd Rundgren. Straight Up was released in the US in December 1971, and spawned two successful singles: “Day After Day” (Billboard number four), which sold over a million worldwide, and “Baby Blue” (US number 14). The album reached number 31 on the US charts. It included uncredited special guest appearances from Harrison, Leon Russell, and Klaus Voormann. Commenting on the recording of the dual slide guitars on “Day After Day”, Molland remembered: “Pete and I had done the backing track, and George came in the studio and asked if we’d mind if he played … It took hours, and hours, and hours, to get those two guitars in sync”.
As mentioned in the article above, George turned over production responsibilities to Todd Rundgren in order to plan his benefit concert for Bangladesh. Badfinger ended up as the backing band for the concert.
As a bonus, here is a great clip from that concert with George singing Here Comes The Sun backed by Pete Ham from Badfinger.
I never get tired of this performance!