UPDATE 1-Australia's Atlas says iron ore demand falling

(Releads, adds details, company comment)

SYDNEY, Oct 20 (Reuters) - Australia's Atlas Iron Ltd (AGO.AX) warned on Monday that demand for iron ore had fallen in the last few weeks as the U.S. financial crisis swept across global markets.

The warning, the latest by an Australia mining company that the commodities boom was cracking, comes as Atlas commences production of its first ores following final government approval for its Pardoo lode in west Australia.

The Perth-based miner is one of a handful of start-up operations seeking to supply ore to China from smaller deposits in the vast Australian outback, until recently the exclusive domain of industry majors Rio Tinto Ltd/Plc (RIO.AX)(RIO.L) and BHP Billiton Ltd/Plc (BHP.AX)(BLT.L).

Atlas, which has been awaiting final clearance to start mining since August, said it had yet to finalise sales agreements with buyers and would stockpile its iron ore until contracts were signed.

"Atlas' offtake agreements are ongoing with a small number of short-listed parties," Atlas Managing director David Flanagan said in a statement.

"The company expects to announce an offtake agreement in the short term," he said.

Earlier this month, steel mills in China asked another Australian miner, Mount Gibson Iron Ltd (MGX.AX), to delay some iron ore shipments, seen at the time as the strongest public sign the world's top steel producer is choking on supplies of the feedstock.

Rio Tinto Ltd/Plc (RIO.AX)(RIO.L), Australia's largest iron ore producer, has also since warned that demand for industrial commodities in China was falling, though it has not announced any changes to its shipping schedules.

The Pardoo mine is located 75 kilometres (45 miles) by road from the port of Port Hedland and will use freighter loading facilities owned by fellow Australian firm Fortescue Metals Group Ltd (FMG.AX) under an earlier agreement.

Trading in Atlas, whose shares have dropped 60 percent since Sept. 1 to A$1.10 were removed from voluntary suspension on following announcement, the company also said. (Reporting by James Regan)