* Q3 EPS C$1.51 vs forecast C$1.36
* Canada, U.S. retail earnings both up 14 percent
* Benefits from 'unexpectedly strong' Canadian economy (Recasts, adds analyst CFO comment)
TORONTO, Aug 31 (Reuters) - Toronto-Dominion Bank on Thursday posted earnings which beat forecasts by a bigger margin than its rivals in a quarter which has seen Canada's top six lenders outperform market expectations.
TD, the country's second biggest lender, said earnings per share, excluding one-off items, rose to C$1.51 from C$1.27 a year ago in the third-quarter ending on June 30, benefiting from strong performances from its U.S. and Canadian retail businesses.
Analysts had on average expected an EPS of C$1.36.
"TD showed the strongest beat of the 'Big 6' this earnings season, coming in well ahead of expectations," said Barclays analyst John Aiken.
"Its U.S. platform continued its upward earnings trajectory and its domestic retail operations saw a step up in its profitability after being mired in lower growth over the past few quarters," he added.
In the financial services industry, retail banking refers to operations dealing directly with consumers rather than companies or other banks.
TD said net income rose to C$2.8 billion from C$2.4 billion a year earlier. Canadian retail net income rose by 14 percent to C$1.7 billion, while U.S. retail net income also grew by the same percentage to C$901 million.
"TD's performance this quarter demonstrates the strength of our businesses in Canada and the U.S.," Chief Executive Officer Bharat Masrani said in a statement.
Helping Canada's biggest banks post above-forecast profits has been the robust economic growth rate - the fastest of any country this year in the G7 grouping of major developed economies.
The country's gross domestic product grew at the strongest pace in nearly six years in the second quarter, data from Statistics Canada showed.
Besides TD, the other country's other top banks include Royal Bank of Canada, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada.
TD Chief Financial Officer Riaz Ahmed said the bank had benefited from Canada's "unexpectedly strong economic performance" but cautioned there are headwinds including concerns about house prices in Toronto and Vancouver.
Canadian authorities have introduced policies, including taxes on foreign buyers, intended to cool the housing market and bring about a "soft landing," where prices stabilize gradually.
"All the indicators seem to be that we're in the middle of a soft landing rather than a hard lending and obviously that would be a very good outcome," Ahmed said in an interview.
TD also announced plans to buy back up to 35 million shares, equivalent to 1.9 percent of its shares outstanding, to return excess capital to shareholders. (Reporting by Matt Scuffham; Editing by Jane Merriman, Chizu Nomiyama and W Simon)