(Adds market reaction, analyst comment, further detail)
By Jeffrey Hodgson
TORONTO, Dec 2 (Reuters) - Bank of Montreal kicked off the fourth-quarter reporting season for Canadian lenders on Tuesday with a weaker-than-expected profit, hurt by results at its capital markets arm, sending its stock lower in early trade.
Net income at Canada's fourth-largest bank was C$1.07 billion ($941.57 million), or C$1.56 a share, for the fourth quarter ended Oct. 31, compared with C$1.07 billion, or C$1.60 a share, a year earlier.
Adjusted earnings were C$1.63 a share, while analysts had expected C$1.68 a share.
"BMO continues to show progress in U.S. retail, an abysmal capital markets quarter, noise in wealth management and flat domestic retail earnings on top of an arguably low quality miss," Barclays Capital analysts John Aiken wrote in a note to clients.
Aiken said the report "could weigh on the sector as a whole, unless better earnings are produced throughout the remainder of the week."
For Canadian banks, the fourth quarter ends on Oct. 31, instead of Dec. 31, as is the case with most other companies in the country.
Canada's top banks are all set to report fourth-quarter results this week, including Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Canadian Imperial Bank of Commerce and National Bank of Canada.
Bank of Montreal shares fell 1.4 percent to C$82.14 in early trade. The broader S&P/TSX financial index fell 0.4 percent.
The earnings miss by Bank of Montreal was partly offset its decision to increase its dividend by 3 percent and renew its share buyback plan. The bank increased its quarterly dividend by 2 Canadian cents to 80 Canadian cents per share.
Revenue rose to C$4.34 billion from C$4.138 billion.
Net income at its Canadian personal and commercial arm rose 14 percent from a year earlier to C$524 million, as revenue rose 7 percent. At the U.S. division, net income rose $54 million to $152 million.
Net income at its wealth management arm was C$226 million, down from C$311 million a year ago, when the quarter was bolstered by a C$121 million after-tax security gain.
At its capital markets arm, net income fell 12 percent from a year earlier to C$191 million as higher revenue was more than offset by higher expenses and lower loan recoveries.
$1 = 1.1364 Canadian dollars Editing by W Simon