UPDATE 2-BMO profit tops estimates on wealth, domestic loans

* Strong results despite lower profit at U.S. bank unit

* BMO's domestic retail banking steady despite housing market worries

* Shares up slightly; more banks to report this week

TORONTO, Feb 25 (Reuters) - Bank of Montreal reported higher-than-expected quarterly earnings on Tuesday after a strong performance in its wealth management business and growth in domestic banking profits in spite of worries about a slowing housing market.

Shares of Canada's No. 4 bank rose modestly, outperforming most of its peers as investors looked past year-on-year profit declines in BMO's closely watched U.S. retail bank.

"Growth in the domestic bank was better than my expectations," said Edward Jones analyst Tom Lewandowski.

Profit from BMO's Canadian retail banking operation rose 8 percent to C$484 million ($436.90 million) in the first quarter ended Jan. 31, with loan growth of 10 percent more than offsetting narrower interest margins.

BMO has fought to increase its share of the domestic mortgage market over the past few years, offering low-rate loans that have sometimes spurred price wars with the other banks.

All told, net profit for the quarter was C$1.06 billion or C$1.58 a share, up from C$1.04 billion, or C$1.51 a share, a year earlier.

Excluding a charge for the amortization of acquisition-related intangible assets, the bank earned C$1.61 a share, topping analyst' estimates of a profit of C$1.53, according to Thomson Reuters I/B/E/S.

Loan-loss provisions fell to C$99 million from C$178 million.

BMO's news follows a similarly better-than-expected results from smaller rival National Bank of Canada late on Monday.

That bank reported earnings of C$1.09 a share before special items, topping analysts' estimates of C$1.05. Personal lending volume rose 7 percent, and commercial lending increased by 5 percent.

Domestic retail lending, particularly mortgages, has long been the main profit driver for Canada's banks, but loan growth has slowed in the last few years as Canada's previously red-hot housing market has cooled and consumers struggle under record high debt levels.

However, fears of a U.S.-style housing crash have eased over the past year, and loan growth has maintained some momentum, in part because of persistently low mortgage rates.

But analysts say rates will eventually rise, which could raise loan losses.

"We believe that tepid loan growth and a turn in the credit cycle will, at some point, pressure earnings in this segment," National Bank Financial analyst Peter Routledge said in a note.

BMO shares were up 0.4 percent at C$72.89 on the Toronto Stock Exchange.


The concerns over retail banking profits have prompted the banks to seek to growth in other segments, particularly wealth management.

BMO, which is buying Britain's F&C Asset management for about C$1.3 billion, said wealth management income rose 8 percent to C$175 million in the first quarter.

National's wealth management income jumped 42 percent to C$68 million, helped by the C$250 million acquisition of TD Waterhouse's institutional services business in November.

Profit at BMO's U.S. Harris Bank unit slid 15 percent to US$153 million, although it was up from a weak fourth quarter.

BMO approximately doubled the size of its U.S. bank operation with the 2011 acquisition of Wisconsin lender Marshall & Ilsley, but the business has so far shown uneven results.

"(It) was a little bit slower than I had expected, but loan growth there still seems to be pretty decent," said Lewandowski.

Royal Bank of Canada, the country's largest bank, will release its results on Wednesday, while Toronto-Dominion Bank and Canadian Imperial Bank of Commerce will report on Thursday.