POSCO , the world's No.3 steelmaker, reported a smaller-than-expected 33 percent gain in quarterly

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operating profit, as it was unable to fully pass on soaring raw material costs to customers due to a weak global economy and demand.

The South Korean company on Friday said its October-December operating profit was 692 billion won on a parent basis, below a consensus forecast of 839.3 billion won from Thomson Reuters I/B/E/S.

That was up from 519 billion won a year earlier and down from 1.09 trillion won the previous quarter.

Fourth-quarter sales rose to 10 trillion won from 9.2 trillion won a year earlier.

POSCO, backed by billionaire investor Warren Buffett, last month estimated a 4.2 trillion won operating profit in 2011, down 12 percent from a year ago. Sales rose 20 percent to 39.17 trillion won last year, it said.

Prior to the earnings announcement, shares in POSCO, which trails ArcelorMittal and China's Baosteel in steel production, ended down 0.36 percent in a wider market that fell 0.6 percent.