UPDATE 1-Atlas Air cuts forecast on air cargo market softness

* Earnings of $1.26 miss analysts' estimate of $1.35

* Shares sink 16 percent

Nov 1 (Reuters) - Cargo carrier Atlas Air Worldwide Holdings Inc reported a lower-than-expected quarterly profit on Thursday and cut its full-year forecast, citing a soft air freight market, and its shares fell 16 percent.

Atlas Air, which provides charter freight services to commercial airlines and the U.S. military, said it expected full-year earnings to exceed $4.65 a share, compared with an August forecast of more than $5.10.

A number of cargo carriers have noted weakness in demand lately. Last month, the International Air Transport Association revised its outlook for cargo, saying the sector would have a 0.4 percent contraction in 2012 instead of 0.3 percent growth as previously forecast.

By value, about 40 percent of internationally shipped goods go by air, and cargo demand is seen as a barometer for world trade and the health of the economy.

Net income at Atlas Air was $33.9 million, or $1.27 a share, in the third quarter, compared with $28.2 million, or $1.07 a share, a year earlier.

Adjusted for special items, the profit was $1.26 a share, while analysts on average were expecting $1.35, according to Thomson Reuters I/B/E/S.

Revenue rose 13 percent to $409.3 million, shy of the $415.2 million that analysts had forecast.

Shares of Atlas Air were down 16 percent at $46.17 in morning trading.