* Profit tops consensus estimates
* Dividend rises C$0.03/shr to C$0.52/shr
* Shares ease due to bloated market expectations
* Bank holding on to 36 pct CI Financial stake for now (Adds name to byline, details, closing share price)
By Cameron French and John McCrank
TORONTO, March 8 Profit at Bank of Nova Scotia (BNS.TO) rose 18 percent in its first quarter on stronger Canadian retail and international banking income, prompting the lender to raise its quarterly dividend.
But shares of Canada's No. 3 bank fell as the earnings -- though slightly above analysts' estimates -- failed to satisfy ambitious expectations fueled by strong results from the bank's rivals in recent weeks.
Scotiabank earned C$1.17 billion ($1.21 billion), or C$1.07 a share, in the quarter ended Jan. 31, up from C$988 million, or 91 Canadian cents a share, in the year-before period.
Adjusted to take account of tax amortization of intangible assets, the bank earned C$1.09 a share, which beat the C$1.06 a share expected by analysts.
The results cap a quarter in which Canadian bank earnings blew past expectations as strong growth in consumer loans and deposits defied predictions that lending would dry up.
Scotiabank's shares ended down 1.4 percent at C$59.29 on the Toronto Stock Exchange, underperforming the market's bank group as a whole, which closed up 0.53 percent.
"Coming in in line is almost a bit disappointing this quarter because the bank group largely exceeded expectations," said Craig Fehr, an analyst at Edward Jones in St. Louis, Missouri.
The bank raised its quarterly dividend for the first time since the financial crisis, following the lead taken by Toronto-Dominion Bank (TD.TO) last week.
Scotiabank lifted its payout by 3 Canadian cents to 52 Canadian cents a share.
Analysts had predicted Scotiabank might wait until later in the year to raise its dividend.
Royal Bank of Canada (RY.TO) and Canadian Imperial Bank of Commerce (CM.TO) have suggested they could lift their dividends later in the year.
"It certainly puts more pressure on the other banks to raise their dividends," said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier, who said the Scotiabank results represented a "clean sweep" for the banks.
Scotiabank's core Canadian retail lending operation earned C$496 million, up 14 percent, while international banking -- which comprises extensive operations in Latin America and Asia -- earned C$342 million, up 35 percent.
This more than offset weakness at the Scotia Capital investment bank, where income fell 19 percent to C$308 million.
Loan-loss provisions fell to C$269 million from C$371 million as the stronger economy reduced foreclosures and loan defaults.
Return on equity was 18.7 percent, up from 17.4 percent last year.
Scotiabank's results included its new global wealth management segment, which carved out the firm's wealth and insurance businesses from its banking units.
The wealth unit accounted for 16 percent of the bank's earnings for the fiscal 2010 year. Scotiabank said that share would increase as it starts to report the full impact of its C$2.3 billion takeover of DundeeWealth, completed in February, next quarter.
The medium-term target for the unit is to generate 20 percent to 30 percent of Scotiabank's consolidated earnings.
The DundeeWealth deal, where Scotiabank bought the remaining 82 percent of the firm's shares it did not already own, surprised analysts, many of whom thought the bank would buy DundeeWealth rival CI Financial (CIX.TO). Scotiabank holds a 36 percent stake in CI.
In a conference call, the head of Scotiabank's wealth unit said that CI continues to be "an important investment" for the bank. He did not comment on its long-term intentions. ($1=$0.97 Canadian) (Editing by Janet Guttsman)