* 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
* Shares in TD up 3 percent (Adds shares, further 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.
Shares in TD, the country's second-biggest bank, rose 3 percent to $64.90 and were on track to post its biggest percentage daily gain in more than 1-1/2 years.
The bank reported 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. 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.
In an interview with Reuters, TD Chief Financial Officer Riaz Ahmed said that the rebounding economy had helped the bounce in bank earnings.
"The economic environment in Canada has improved more quickly than expected," he said.
The country's gross domestic product grew at the strongest pace in nearly six years in the three-month period ending in June, data from Statistics Canada showed. The quarterly expansion was the fastest among the G7 grouping of developed economies.
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.
Eight Capital analyst Steve Theriault said: "All divisions contributed to the beat, with the most significant beat to consensus from Canadian P&C Banking, where revenue, credit and expense trends were all positive in the quarter."
The country's other top banks -- Royal Bank of Canada , Bank of Nova Scotia, Bank of Montreal , Canadian Imperial Bank of Commerce and National Bank of Canada -- also reported increased profits from Canada.
Canadian banking stocks have largely stagnated this year because of worries that lenders are vulnerable to the potential of a sharp decline in home prices in once-roaring housing markets, industry analysts say.
The Toronto Stock Market's banking index is down 0.6 percent for 2017.
Looking ahead, Ahmed cautioned TD faced headwinds.
These included concerns about house prices in Toronto and Vancouver, where residential real estate markets had been red-hot until recently.
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 added.
(Reporting by Matt Scuffham; Editing by Jane Merriman, Chizu Nomiyama and W Simon)