* Says early indicators suggest Toronto market softening
* U.S. P&C net income down 7 percent to C$260 million
* Adjusted EPS C$1.92 vs C$1.73
* Shares down 3 percent (Recasts, adds comment from BMO Canada head)
By Matt Scuffham
TORONTO, May 24 (Reuters) - BMO Financial Group's Canadian head said on Wednesday that the country's fourth-biggest lender was starting to see signs of a softening in Toronto's housing market.
The province of Ontario last month introduced measures to cool prices in Toronto, which had risen by a third over the course of a year, including the introduction of a 5 percent tax on foreign investors.
Cameron Fowler, BMO's Group Head, Canadian Personal and Commercial Banking, said the measures were already starting to have an impact.
"Early indicators are that we will start to see some softening and, from my own perspective, that is good. Softening in the Toronto market is a good thing and it looks like that may be where we're heading," he said.
Shares in Canada's financial services companies hit a 5-month low earlier this month after credit ratings agency Moody's downgraded the country's banks on May 10, citing concerns over record levels of household debt and the country's hot housing markets.
BMO said alongside its second quarter results that it expected the Ontario government's measures to "moderate an overheated housing market in the Greater Toronto region".
Out of Canada's biggest banks, BMO has the lowest exposure to residential mortgages as a proportion of its total assets.
The bank reported quarterly earnings which were slightly below expectations, hit by a decline in profit in the United States and its shares were trading down 2.9 percent at 1521 EDT.
BMO said earnings per share, excluding one-off items, rose to C$1.92 ($1.42) in the second quarter ended on April 30 from C$1.73 a year earlier. Analysts on average expected C$1.93, according to Thomson Reuters I/B/E/S.
Bank of Montreal said that U.S. loan and deposit growth had moderated, reflecting slower-than-anticipated business activity in the first quarter of the calendar year.
Net income, before one-off items, at the bank's U.S. personal & commercial business fell by 7 percent to C$260 million as the bank set aside more funds to cover bad loans.
The bank said its net income rose by 28 percent to C$1.25 billion, benefiting from a strong performance by its wealth management and capital markets businesses.
Bank of Montreal said its wealth management business had benefited from the improved performance of global equity markets during the period while the previous year had been impacted by an investment write-down.
The bank announced a quarterly dividend of C$0.90, up 5 percent on the previous year.
$1 = 1.3505 Canadian dollars Reporting by Matt Scuffham; Editing by Lisa Von Ahn and Chizu Nomiyama