By Scott Murdoch and Rishav Chatterjee

(Reuters) -Australia's Westpac Banking Corp on Thursday said wider margins and lending and deposits gains helped it post slightly higher third-quarter profit, sending its shares surging more than 5%.

The country's third-largest bank by market value reported a net profit of A$1.9 billion ($1.24 billion) for the three months to June 30, 5% higher than the A$1.8 billion a year earlier.

Westpac's net interest margins, the spread between interest earned from loans and paid to depositors, came in at 1.99% in the quarter, compared with 1.92% a year ago. Net interest income was A$5 billion in the quarter, up 4% from the quarterly average in the first half.

Customer deposits grew by A$10 billion during the quarter, while gross loans jumped by A$16 billion, the bank said in a trading update.

Westpac shares rose to A$35.66 to trade at their highest point in a decade. The bank's shares are up 4.9% so far this year and have risen nearly 20% in the past year.

Australian banking stock valuations, led by Commonwealth Bank, have soared in the past year on the back of increased foreign investor demand and are considered among the most highly valued in the world.

Contribution from Westpac's treasury and markets segment also climbed sharply from a year ago, helped by a favourable interest-rate environment.

The Reserve Bank of Australia has cut its key cash rate by a total of 75 basis points this year, including a 25-basis-point reduction this week.

"The resilience of both households and businesses has been aided by the reduction in interest rates and the moderation of inflation," said CEO Anthony Miller.

"This is reflected in lower levels of customer stress. It should also underpin a recovery in private sector activity and support lending growth."

Miller, who took over as CEO in December, has since focused on cutting costs and streamlining operations and technology under a strategy dubbed UNITE. Quarterly expenses rose, driven by higher salaries and wages and a planned boost in investment for the program.

Late mortgage repayments fell three basis points from a year earlier, the bank added.

The results follow Commonwealth Bank of Australia's report on Wednesday of its strongest annual cash earnings.

The second-largest lender National Australia Bank is set to report its third-quarter earnings next week.

($1 = 1.5281 Australian dollars)

(Reporting by Rishav Chatterjee and Shivangi Lahiri in Bengaluru; Editing by Shreya Biswas, Alan Barona and Shri Navaratnam)