UPDATE 3-Canadian lender CIBC posts better-than-expected quarterly earnings

* Q3 EPS C$2.77 vs forecast C$2.66

* Net income up 9 percent to C$1.17 billion

* Dividend up C$0.03 to C$1.30 (Adds analyst comment)

TORONTO, Aug 24 (Reuters) - Canadian Imperial Bank of Commerce on Thursday posted a rise in quarterly profit, beating analysts' estimates, as a strong performance from its retail business offset a weaker showing at its capital markets division.

Canada's fifth-biggest lender said net income, excluding one-off items, climbed 9 percent to C$1.17 billion ($934 million) in the third quarter which ended on June 30.

Earnings per share increased to C$2.77 from C$2.67 a year ago. Analysts had on average forecast earnings of C$2.66 per share, according to Thomson Reuters I/B/E/S data.

The bank, which acquired Chicago-based PrivateBancorp in a $5 billion deal in June, has been looking to diversify outside of Canada. Of the country's major banks, CIBC is the most exposed to the domestic economy.

"Our strong results this quarter reflect solid contributions from our strategic business units, as well as our (PrivateBancorp) acquisition," Chief Executive Victor Dodig said in a statement.

Net income at its personal and business banking operations rose to C$720 million from C$667 million and increased to C$136 million from C$124 million at its domestic wealth management business.

However, it fell to C$252 million from C$281 million at its capital markets division. The bank said that reflected lower equity derivatives and interest rate trading and a decline in equity underwriting revenue.

The bank's core Tier 1 ratio, a key measure of its financial strength, fell to 10.4 percent on June 30 from 12.2 percent three months earlier, due to the cost of buying PrivateBancorp.

CIBC reported a quarterly dividend increase of 3 Canadian cents per share to C$1.30.

Barclays analyst John Aiken said he expected a "lukewarm reception" to the results in the market.

"Although the dividend increase is an incremental positive and suggests confidence in the contribution from PrivateBancorp going forward and the bank's ability to rebuild its capital ratios, it was largely expected," he said.

Royal Bank of Canada, the country's biggest lender, on Wednesday reported a rise in quarterly profit, helped by double-digit growth at its wealth management business which helped outweigh weaker results at its capital markets unit.

($1 = 1.2533 Canadian dollars) (Reporting by Matt Scuffham; Editing by David Goodman, Mark Potter and W Simon)