* 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 on strong wealth management and domestic banking profits, and executives said they expect the uneven performance of BMO's U.S. unit to eventually improve.
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.
"Growth in the domestic bank was better than my expectations," said Edward Jones analyst Tom Lewandowski.
Canada's No. 4 bank 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, quarterly net profit 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.
Holding back profit gains was BMO's U.S. Harris Bank unit, which saw income slide 15 percent to US$153 million, although that result was up from a very weak fourth quarter.
BMO roughly doubled the size of its U.S. bank when it bought Wisconsin lender Marshall & Ilsley in 2011, but the business has so far shown uneven results.
On a conference call with analysts, BMO chief operating officer Frank Techar said the U.S. business has so far been a "tale of two cities", strong on the commercial and business banking side, but weak in consumer banking, which has been hit by regional economic concerns and regulatory changes.
"Quarter to quarter we're going to see some variability continuing in the market," he said, adding that the bank was focused on improving returns from its consumer lending and card businesses.
"I think we're confident that the second half of the year is going to look better than the first half of the year," he said.
BMO's profit gains follow a similarly better-than-expected result 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.
The concerns over retail banking profits have prompted the banks to seek 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.
The bank's shares were up 6 Canadian cents at C$72.63 on the Toronto Stock Exchange.
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.