UPDATE 1-Spain's BBVA H1 profit down a third

* H1 net profit 1.5 bln euros, down 35 pct

* H1 net interest income 7.3 bln euros

* Writes down 1.4 bln euros in real estate losses (Adds details, background)

By Sonya Dowsett

MADRID, July 31 (Reuters) - Spain's second-biggest bank, BBVA, reported first-half net profit a third lower than the same period last year after it set aside capital to compensate for losses on its toxic real estate loans.

BBVA, which brings up the rear of the Spanish bank reporting season, is the latest lender to post sharp profit falls after the government forced banks this year to recognise losses from a 2008 housing and construction bust.

The bank reported on Tuesday first-half profit of 1.5 billion euros ($1.8 billion), down 35 percent, on net interest income - what a bank earns on loans, minus what it pays out on deposits - of 7.3 billion euros, outpacing analyst expectations.

Spain has asked for up to 100 billion euros in rescue aid from its European partners to prop up its troubled banks, brought low by the property crash and squeezed further by a severe economic downturn.

BBVA and rivals Santander and CaixaBank were the three banks judged not to require state aid according to an independent audit of the banking sector in June.

BBVA, like the euro zone's biggest lender Santander, has reduced its exposure to a sickly domestic market by expanding abroad, with businesses in Mexico, the United States and Turkey.

The bank wrote off 1.4 billion euros in the first half in provisions against real estate losses, which it said accounted for around a third of the 4.6 billion euros it said it needed to set aside by Spanish law.

BBVA and Santander decided not to make any first-quarter provisions against losses on property assets, but are now accelerating their clean-up of repossessed housing, unsold land and bad loans to developers.

($1 = 0.8084 euros) (Editing by Julien Toyer and Mark Potter)