Sun Life Financial Inc's third-quarter earnings rose a slightly better-than-expected 7 percent, driven by its U.S. life, mutual funds and employee benefit businesses and despite a stronger Canadian dollar, the company said on Tuesday.

Canada's third-largest life insurer by market value reported net income of C$577 million ($603.6 million), or C$1.01 a share, in the quarter through Sept. 30.

That compares with C$541 million, or 93 Canadian cents, a year earlier and analysts' expectations of C$1 a share, according to Reuters Estimates.

Toronto-based Sun Life said the strengthening of the Canadian dollar against foreign currencies since the third quarter of 2006 reduced the quarter's earnings by C$19 million, or 4 Canadian cents a share.

Quality of the core earnings was very good, RBC Capital Markets analyst Andre-Phillipe Hardy said in a note to clients.

The company kept its quarterly dividend at 34 Canadian cents.

Return on equity in the quarter was 14.8 percent, slightly up from 14.4 percent a year earlier.

Sun Life's revenue in the quarter was C$5.7 billion, down from C$6.6 billion a year earlier, due to lower annuity premiums.

Breaking results down by business group, earnings at Sun Life U.S. grew 25 percent to C$170 million because of strong equity markets, favorable interest rate hedges and an acquisition in its employee benefits business.

Earnings at MFS, Sun Life's U.S. asset management business, rose 17 percent to C$68 million, mainly due to growth in the assets it managed and improved margins.

Assets under management increased US$2 billion to US$204 billion at the end of the September quarter.

Earnings at Sun Life Canada increased by 7 percent to C$257 million as the unit invested in higher yielding assets.

Sun Life repeated that it doesn't expect any material losses from its investments in asset-backed securities with residential sub-prime and other mortgage exposure. At end-September, it had indirect exposure to C$557 million worth of these securities, or 0.5 percent of total invested assets.

($1=$0.95 Canadian)