Royal Bank of Canada reported a five-percent rise in fourth-quarter profit on Friday, as earnings growth in Canadian retail banking and wealth management offset weaker U.S. banking and capital markets results.

But Royal, Canada's largest bank, followed its peers in warning that domestic growth is set to slow next year, and it trimmed its 2008 objective for growth in earnings per share to between 7 percent and 10 percent.

In 2007, the bank breezed by its goal of more than 10 percent EPS growth, with actual growth of 17 percent. Full-year profit rose 16 percent to a record C$5.5 billion.

Our solid performance in a year marked by challenges in the financial markets reflects the diversity of our businesses across multiple products, markets and geographies, Chief Executive Gord Nixon said in a statement.

In the fourth quarter ended Oct. 31, Royal earned C$1.32 billion ($1.32 billion), or C$1.01 a share. That was up from C$1.26 billion, or 96 Canadian cents a share, in the same period a year ago.

On a cash basis, which excludes items such as a C$269 million gain on the recent restructuring of Visa Inc and charges related to the U.S. subprime housing market, the bank earned C$1.03 a share in the quarter.

Analysts had expected profit of C$1.04 a share before exceptional items, according to Reuters Estimates.

In its Canadian banking and global insurance operations, net income climbed 5 percent to C$709 million, excluding the Visa gain and other items.

Its wealth management unit saw quarterly profit increase 10 percent to C$180 million.

But capital markets profit fell 38 percent to C$186 million on the subprime write-downs .

Royal warned on Nov. 13 that it would take a C$160 million after-tax charge in the fourth quarter for investments tied to the U.S. subprime mortgage market, where some analysts expect at least one in every four risky home loans could go into default.

U.S. and international banking profit fell 73 percent to C$21 million, as the deteriorating U.S. housing market led to higher provisions for credit losses, the bank said.

During the quarter, Royal Bank announced two acquisitions: the US$1.6 billion purchase of Alabama National BanCorp (ALAB.O: Quote, Profile, Research) through its RBC Centura subsidiary in the U.S. Southeast, and the US$2.2 billion purchase of Trinidad and Tobago-based RBTT Financial Group.

For 2008, the bank retained most of its 2007 objectives. It still aims to earn more than a 20 percent return on equity, and to pay out 40-50 percent of profit as dividends to shareholders.

In the year just ended, return on equity was 24.6 percent and its dividend payout ratio was 43 percent.

($1=$1 Canadian) (Reporting by Lynne Olver and Jonathan Spicer; editing by Janet Guttsman)