UPDATE 3-Union Pacific tops analyst view, shares rise

* Q2 EPS ex-items 78 cts vs Wall St view of 74 cts

* Says freight volumes down 22 percent

* Says freight volumes appear to have hit the bottom

* Shares up more than 1 percent (Adds CEO comments, analyst comment, updates stock action)

DETROIT, July 23 (Reuters) - Union Pacific Corp (UNP.N) reported a better-than expected quarterly profit on Thursday, despite lower freight volumes and revenue, and the No. 1 U.S. railroad said the economy appeared to have leveled out.

"Although we expect it will be some time before the economy recovers, "it appears that volume levels may have hit the bottom as the economy seems to have stabilized," Chief Executive Jim Young said in a statement.

The Omaha, Nebraska-based company reported second-quarter net income of $468 million, or 92 cents a share, compared with $531 million, or $1.02 a share, a year earlier.

Excluding a one-time benefit from the $72 million sale of land, the company reported earnings per share of 78 cents.

That figure beat the 74 cents per share that analysts had expected, according to Reuters Estimates.

Revenue fell to $3.30 billion from $4.57 billion. Analysts on average had expected $3.38 billion, according to Reuters Estimates.

Freight volumes, measured in rail car loads, were down 22 percent in the quarter, the company said. But its freight rates remained strong. Average revenue per car load fell to $3,045 from $3,301 thanks largely to a drop in fuel surcharges.

"Union Pacific's Q2 results reinforce two of the three reasons we like the stock: i) strong pricing momentum ...; and ii) the powerful multi-year productivity story continues to fire on all cylinders," UBS analyst Rick Paterson wrote in a note for clients. "The third reason of course is valuation. Not as good as it was a few weeks back, but not yet expensive."

Like the other major U.S. railroads, Union Pacific had reported robust profits in recent quarters as strong pricing helped them offset falling freight volumes. But analysts have warned that a prolonged recession could undermine their pricing power.

In an interview with Reuters, Union Pacific CEO Young said he was "still confident" the railroad's full-year 2009 price increases would be between 5 percent and 6 percent and that he was "hopeful" pricing will be positive in 2010.

The holiday shipping peak season, which should begin within the next four to six weeks, will depend on whether recession- battered Americans go out and spend, he said.

"The question is whether the consumer will get back into the game," Young said.

In trading afternoon on the New York Stock Exchange, Union Pacific shares were up 78 cents or 1.32 percent at $60.01. (Reporting by Nick Carey; editing by Lisa Von Ahn editing by Andre Grenon)