TORONTO, April 16 (Reuters) - The U.S. economy was showing signs of stronger than expected growth, with California being a strategically important market, said the head of Bank of Montreal, which has rapidly expanded in its southern neighbour.

CEO Darryl White, addressing shareholders at the bank's annual meeting, said the bank was well positioned to cater to clients between American and Canadian economies in a shifting global landscape.

BMO, Canada's third largest bank by market capitalization, makes about a third of its income from the United States after its $16.3 billion Bank of the West acquisition last year, the biggest ever deal in Canadian banking history.

He said that trade and investment between Canada and the U.S. is key to economic competitiveness noting that it is one of the largest bilateral trade relationships in the world.

"The relationship is significant. Put into context, just counting the Great Lakes region… (it) would be the world’s third largest economy, nearly equal to that of Japan and Germany combined, and the region employs about a third of the U.S.-Canadian combined workforce," he said.

"Then add in California, an economy almost twice the size of Canada's, and you can see the global impact this North-South partnership has."

Canadian banks are increasingly looking to expand south of the border or in other parts of the world as opportunities at home are limited in a saturated market.

White cautioned about a higher-for-longer interest rate environment as borrowing costs remain high and demand weakens. But when rates begin to ease, the market could see a "new normal, an environment with fundamentally different characteristics than that of the past two decades," he said.

(Reporting by Nivedita Balu in Toronto; Editing by Aurora Ellis)