* Q4 EPS C$1.08 vs analyst forecast of C$1.09
* Canadian National Rail sees double-digit growth for 2011
* Expects slower economic growth in 2011
* Increases dividend 20 pct
(Recasts with analyst comment, adds CEO comment, dateline)
VANCOUVER, Jan 25 (Reuters) - Canadian National Railway Co (CNR.TO) said on Tuesday its underlying profit rose slightly less than expected as higher fuel and other expenses ate into a 12 percent revenue gain, sending its stock lower.
CN, Canada's biggest railway, forecast double-digit growth in earnings per share in 2011 although it said it expects North American economic growth to slow.
The company also raised its dividend by 20 percent and approved a new program to buy back up to 16.5 million shares.
"CN had a very solid report considering the environment they faced. They continued to make gains on the top line. It's just a question of delivering more of it to the bottom line," said Jeffrey Kauffman, an analyst at Sterne Agee.
CN's stock was down 80 Canadian cents, or 1.17 percent, to C$67.65 on the Toronto Stock Exchange.
The railroad's net income for the fourth quarter fell 13.6 percent to C$503 million.
But excluding a gain on a sale and an income tax recovery in the fourth quarter of 2009, CN said its adjusted earnings increased 19 percent to C$424 million.
Diluted earnings per share of C$1.08 were a penny below the C$1.09 that analysts were expecting, according to Thomson Reuters I/B/E/S.
Revenue rose 12 percent to C$2.1 billion, helped by strong volumes, and in line with market expectations.
"We believe the North American economy will continue to recover in 2011, but at a slower pace than in 2010, and that global economic conditions will continue to improve," CN Chief Executive Claude Mongeau said in a statement.
CN's operating ratio, an important barometer measuring the railway's operating efficiency, improved to 63.4 percent versus 65.3 percent a year ago.
Its fuel expense rose 24 percent to C$291 million in the quarter.
The company forecast 2011 free cash flow of C$850 million despite higher taxes.
CN narrowly avoided a strike by some 4,000 unionized clerical, mechanical and truck driver workers this week, after it reached last-minute tentative agreements on Monday with the Canadian Auto Workers union. [ID:nN24168226]
$1=0.9936 Canadian Dollar Reporting by Nicole Mordant in Vancouver and Gowri Jayakumar in Bangalore; Editing by Frank McGurty