UPDATE 1-Commonwealth Bank reports strong Q1, shares leap

* Q1 cash earnings A$1.4 bln, no comparative figure

* Australian wealth and retail drives earnings

* Pace and extent of economic recovery remain unclear (Recasts lead, adds CEO comment, shares, detail)

By Morag MacKinnon

SYDNEY, Nov 9 (Reuters) - Commonwealth Bank of Australia Ltd (CBA) (CBA.AX), the nation's second-biggest lender, reported a strong first-quarter profit on Monday, with business improving across the board, sending its shares sharply higher. CBA, also the country's largest mortgage lender, said in a trading update that cash net profit was about A$1.4 billion ($1.29 billion), as home-loan growth and stronger equity markets drove earnings. It did not give a comparative figure.

The result is almost equal to one third of the full-year cash profit of A$4.415 billion reported in August.

CBA shares jumped 3 percent in early trade. The stock has risen about 20 percent since it reported profits in mid August, well outperforming the benchmark S&P/ASX200 stock index .AXJO.

Chief Executive Ralph Norris said that despite the strong performance, the operating environment remained challenging with average funding costs rising and credit growth slowing.

He didn't provide specific full year guidance.

"Whilst the economic outlook has improved since our results in August, the pace and extent of the recovery remains unclear," Norris said. "We will therefore continue to retain our conservative business settings until such time as a sustained improvement is evident."

Wealth management was the standout performer in the quarter with fund flows rising 8.3 percent and equity markets staging a strong recovery, a phenomenon Norris warned may not be repeated.

Bad-debt charges were about A$700 million with credit quality trends "generally moving in line with expectations", CBA said.

The nation's other three big banks -- Australia and New Zealand Banking Group Ltd (ANZ.AX), Westpac Banking Corp (WBC.AX) and National Australia Bank Ltd (NAB.AX) -- have Sept. 30 balance dates and all posted above-forecast profits in the past two weeks.

The banks differed slightly in their outlook for the bad-debt cycle in Australia depending on the skew of their loan books, with Westpac's rhetoric the most confident in calling a peak in bad debts. CBA and Westpac dominate the home mortgage market.

In August, CBA reported a 2.3 percent gain in second half cash profit helped by its acquisition of mid-tier Australian lender Bankwest from Lloyds (LLOY.L) but Norris played down the bank's outlook, saying it would be a tough year.

The outlook for the Australian economy has improved markedly since then as robust consumer confidence and strong demand from China for resources drive growth.