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(Recasts, adds background, details on results)
By Guillermo Parra-Bernal
SAO PAULO, Aug 11 (Reuters) - State-controlled Banco do Brasil SA cut its loan-book growth targets for this year on Thursday, as the harshest recession in decades and rising defaults forced Brazil's biggest bank by assets to retreat from riskier credit segments.
Brasilia-based Banco do Brasil sees disbursements shrinking by an average 0.5 percent this year, compared with a 4.5 percent expansion goal given in February. Still, the bank sharply raised the guidance range for interest income growth to between 11 percent and 15 percent.
While the outlook for loan repricing remains favorable, the bank is struggling to contain a surge in defaults by large and small corporate borrowers alike, which are struggling with the highest borrowing costs in a decade and the recession.
In the previous quarter, loans in arrears for 90 days or more, a benchmark for defaults, at the bank rose the most since at least 2009.
As a result, Banco do Brasil missed second-quarter profit estimates on Thursday. Excluding one-off items, it had 1.801 billion reais ($577 million) of recurring net income in the quarter, below the average analyst consensus estimate of 2.117 billion reais compiled by Thomson Reuters.
Still, recurring profit, as the indicator is known, was 40 percent bigger than in the prior three months.
Management plans to discuss second-quarter results later in the day.
$1 = 3.1233 Brazilian reais Editing by Gareth Jones and Bernadette Baum