FRANKFURT (Reuters) - Lufthansa's (>> Deutsche Lufthansa AG) cargo unit is keen for a tie-up with Turkish Airlines (>> Turk Hava Yollari AO), its chief executive said on Thursday, a move that would expand the German airline's presence in growth markets such as Turkey and the Middle East.

Lufthansa, Europe's biggest airline in terms of sales, and Turkish Airlines, the world's fastest growing airline, already have code share agreements and jointly operate charter carrier SunExpress.

The two airlines held talks on strengthening ties late last year, but they have so far not announced any deals, and Lufthansa said last week it was not working on any specific projects.

Karl Ulrich Garnadt, Lufthansa Cargo's Chief Executive, hinted at a possible cargo deal however, saying Istanbul was close enough to be easily linked with continental Europe through small aircraft.

"We want to have a more intensive cooperation with Turkish Airlines," he told Reuters on the sidelines of Lufthansa's full-year results news conference.

"It is an interesting story. We will examine that in the future," he said, adding that a tie-up could also allow Lufthansa Cargo to broaden its access to some Asian regions such as Azerbaijan.

Lufthansa Cargo expects to hike its freight capacity by 1-2 percent this year, pinning its hopes on growth in Germany, the Asia-Pacific region and the United States, as it slowly rebounds form a slump in 2012 when it scaled back capacity by 8.2 percent.

Its market outlook chimes with that of the International Air Transport Association, which expects worldwide cargo traffic to improve by 2.7 percent this year, up from a previous forecast of 1.4 percent.

Rival Cathay Pacific (>> Cathay Pacific Airways Limited), the world's largest international air cargo carrier, recently said it does not yet see a lasting recovery in the freight market, after reporting an 83 percent year-on-year drop in profit for 2012.

(Reporting By Marilyn Gerlach. Editing by Jane Merriman and Clelia Oziel)

By Marilyn Gerlach