* Cash EPS C$1.32 vs estimates of C$1.31
* To issue C$400 mln in stock, down from C$800 mln
* Bank's shares ease 0.3 pct to C$61.77 (Adds details from conference call, updates shares)
By Cameron French
TORONTO, March 1 (Reuters) - Bank of Montreal's (BMO.TO) first-quarter profit rose 18 percent due to stronger loan growth and investment banking fees, and the bank said it will issue less stock than previously expected to pay for its acquisition of Wisconsin bank Marshall & Ilsley Corp MI.N.
Cash earnings of C$1.32 were marginally above expectations of C$1.31 a share, while the planned equity issuance of C$400 million was half the bank's original target to pay for the $4.1 billion acquisition announced late last year.
Profit was driven by increased lending at wider margins, and stronger trading and underwriting fees at its investment bank unit.
But BMO's shares fell slightly as the strong result ran up against high expectations spurred by much better than expected profits reported last week by rivals Canadian Imperial Bank of Commerce (CM.TO) and National Bank of Canada (NA.TO).
"The stage was set with a pretty high bar last week," said Craig Fehr, an analyst at Edward Jones in St. Louis, Missouri.
Shares of BMO ended the session down 0.3 percent at C$61.77, trading roughly in line with their peers.
Fehr said BMO's loan growth, wholesale banking and wealth management profits were all strong during the quarter.
"I'd say the one blemish was the fact that credit performance didn't improve at the pace we'd expected it to, so loan loss provisions were slightly above our estimates," he said.
BMO's provisions for bad loans -- which have been declining steadily over the past year, helping drive profit growth for Canadian banks -- fell 25.6 percent to C$248 million.
Analysts and bankers have predicted that retail loan growth will slow this year as borrowers try to reduce debt levels in anticipation of higher interest rates. But first-quarter bank results so far suggest consumers are still willing to borrow.
"It's clear we are going to see some slowing, and we've started to see that already. My expectation is we're not going to go to zero," Frank Techar, head of BMO's Canadian personal and commercial bank, told investors on a conference call.
"Growth levels are still fairly healthy."
On a net basis, BMO earned C$776 million ($800 million), or C$1.30 a share, in its first quarter, up 18 percent from C$657 million, or C$1.12 a share, a year earlier.
Profit at BMO's U.S. Midwest bank slid 17 percent due to impaired loans.
BMO has operated Chicago-based Harris Bank for more than two decades, and in December it agreed to buy troubled Wisconsin lender Marshall & Ilsley.
At the time, BMO said it would issue about C$800 million in stock to pay for the transaction. But extra clarity on looming Basel III capital regulations allowed it to reduce that estimate to C$400 million, it said on Tuesday.
Speaking on the call, BMO Chief Executive Bill Downe said it was possible the size of the stock issue could fall further.
He also said cost savings from the combination of M&I and BMO's existing U.S. operations could better BMO's original estimate of C$250 million in annual savings by 2013.
"We expect to meet or exceed this number," he said.
$1=$0.97 Canadian Reporting by Cameron French; editing by Peter Galloway