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UPDATE 2-Brazil's Ita+¦ Unibanco raises shareholder payout, beats estimates

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SAO PAULO, Feb 5 (Reuters) - Brazil's Itaú Unibanco Holding SA on Monday steeply increased its payout to shareholders, as the country's largest lender beat analysts' estimates for net income and return on equity on the fourth quarter.

Itaú said in a securities filing that dividends to shareholders would reach 17.2 billion reais ($5.3 billion), equivalent to 70 percent of last year's net income.

If the effect of share buyback programs is included, the payout ratio reaches 83 percent, Itaú said. The bank in September scrapped a 45 percent payout cap.

Itaú beat analysts' estimates for recurring return on equity on the fourth quarter with 21.9 percent, compared with a 20.7 pct consensus compiled by Thomson Reuters.

Net income of 6.280 billion reais was slightly above analysts' consensus of 6.243 billion reais, as the fall in loan-loss expenses offset the reduction in interest income as Brazilian basic interest rates reached their lowest-ever level.

As the country showed the first signs of emerging from its harshest recession in decades on the fourth quarter, Itaú's loan book grew 3.2 percent over the three previous months, excluding acquisition effects. Adding the loan book of Citigroup Inc's Brazilian retail unit, acquired by Itaú, growth reached 4 percent on the quarter.

Itaú expects its loan book to grow from 4 percent to 7 percent this year, after a 0.8 percent contraction for full-year 2017.

Lower credit losses and higher volumes are expected to offset further decreases in interest income from loans. Last quarter, Itaú's recurring interest income was 11.2 percent below the same period a year earlier.

Default rates above 90 days fell to 3 percent in the fourth quarter, 0.2 percentage point below the ratio on the previous quarter. ($1 = 3.2627 reais) ($1 = 3.2624 reais) (Reporting by Carolina Mandl; Editing by Sandra Maler and Peter Cooney)