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UPDATE 2-Pricing boosts Union Pacific revenue, but increases to slow

(In Oct 17 item, corrects paragraph four to attribute quote to CFO Rob Knight instead of executive vice president of operations Lance Fritz)

Oct 17 (Reuters) - Union Pacific Corp said on Thursday that it expected its freight rates to rise more slowly in 2014 than this year, sending its shares down more than 3 percent.

The U.S. railroad posted higher third-quarter revenue as it raised rates by an average of 3.5 percent, but overall volume was flat.

"The outlook for the fourth quarter and 2014 is muted, and the rate of core pricing growth is decelerating," said R.W Baird analyst Benjamin Hartford. The company did not give an earnings forecast for the year.

On a conference call with analysts, chief financial officer Rob Knight said Union Pacific did not expect pricing gains next year to match those of 2013.

Railroads are seen as key indicators of how an economy is doing because of the variety of goods they transport.

The companies have suffered from a slump in coal shipment volumes as demand for natural gas has increased. For Union Pacific, a mild summer and flooding in Colorado hurt its coal volumes.

Shipments rose 8 percent for automotive products and 9 percent for industrial products.

Retailers proceeded cautiously with order volumes in the quarter, Eric Butler, executive vice president of marketing and sales, said on the call.

"Our current outlook is for the economy to continue its slow improvement, although there is uncertainty in the marketplace," Butler said.

Union Pacific, the largest publicly traded U.S. railroad, said coal volumes fell 7 percent, matching the decline at smaller rival CSX Corp.

Butler said the company expected full-year coal volumes to be down in the high single-digit percentage range, in part because of a lost contract.

Union Pacific, which links 23 states in the West and Midwest, said it had earned $1.15 billion, or $2.48 a share, up from $1 billion, or $2.19 a share, a year earlier.

Analysts on average were expecting a profit of $2.47 a share, according to Thomson Reuters I/B/E/S.

Revenue for the Omaha, Nebraska-based company rose 4 percent to $5.6 billion, compared with analysts' estimates of $5.58 billion.

The company's shares were down 3.3 percent at $152.01 on the New York Stock Exchange. (Reporting by Nivedita Bhattacharjee in Chicago; Editing by John Wallace and Lisa Von Ahn)