UPDATE 1-IATA raises profit outlook for world's airlines

(Adds quote and detail)

GENEVA, March 20 (Reuters) - The world's airlines nudged up their profit forecasts for 2013, reflecting growing confidence in the global economy and the financial performance of airlines, the International Air Transport Association said on Wednesday.

The association, which represents about 80 percent of global carriers, said it expects the $671 billion global airline industry to make a net profit of $10.6 billion this year, up from an earlier forecast of $8.4 billion, and well above the $7.6 billion achieved in 2012.

"Against a backdrop of improved optimism for global economic prospects, passenger demand has been strong and cargo markets are starting to grow again," said Tony Tyler, IATA's director general and chief executive.

IATA cautioned that the euro zone risked a renewed crisis from the situation in Cyprus, and that its forecast was based on the euro zone remaining stable. The association noted that airline stocks have climbed 7 percent so far in 2013, despite a 5 percent rise in the price of jet fuel.

Rising revenue and better margins are driving higher profits, it said. Revenue is forecast to hit $671 billion this year, compared with the prior forecast of $659 billion. Margins are expected to widen slightly, to 1.6 percent after tax, compared with the prior forecast of 1.3 percent, but they remain slender.

Passenger traffic is forecast to rise by 5.4 percent compared with an earlier forecast of 4.5 percent, while cargo activity - a sensitive barometer of world trade -- is forecast rising 2.7 percent, compared with a forecast of 1.4 percent previously.

(Reporting by Robert Evans, writing by Alwyn Scott, editing by Tim Hepher and Tom Miles)