Updates share move in paragraph 1, adds CFO comment in paragraph 5 and CEO comment in paragraph 10

By Apratim Sarkar

July 23 (Reuters) - Union Pacific's UNP.N second-quarter profit beat Wall Street estimates on Thursday, as higher freight rates and strong demand overshadowed an increase in operating costs, sending its shares up nearly 6%.

U.S. railroads have capitalized on pricing strength and operational discipline, while efforts to improve network reliability and on-time performance have helped support freight volumes and attract new business.

However, higher fuel costs have remained a challenge for the industry.

Union Pacific's operating expenses rose 13% to $4.1 billion in the three months ended June 30, driven by a 63% jump in fuel expenses to $938 million.

CFO Jennifer Hamann said on a post-earnings call that fuel prices remain volatile and the railroad's recent fuel purchases were above $4 a gallon.

The earnings report comes a day after the U.S. Surface Transportation Board ordered Union Pacific and Norfolk Southern to make employee-impact data public in their proposed merger application, siding with labor unions that had sought disclosure of the information.

Union Pacific is pursuing an $85 billion acquisition of Norfolk Southern NSC.N, a transaction that would create the first coast-to-coast U.S. freight railroad operator.

The Surface Transportation Board had earlier paused its review of a revised merger application and requested additional information on competition and the impact on customers and rival railroads.

Canadian National Railway on Wednesday signed a binding agreement with Union Pacific to strengthen rail service across North America, and agreed not to oppose the Union Pacific-Norfolk Southern merger.

"It's a win for Union Pacific. And it's also a great position for Canadian National," CEO Jim Vena said.

Union Pacific reported second-quarter adjusted earnings of $3.41 per share, topping analysts' average estimate of $3.24, according to LSEG data.

Revenue jumped 12% to $6.86 billion from a year earlier, beating analysts' expectation of $6.71 billion. Its freight revenue also rose 12% to $6.52 billion.