* Lending growth rises 1 pct in March from February
* Defaults stable at 4.8 pct
* Earmarked loans up 1.4 pct (Recasts to add details on borrowing costs, earmarked loans)
BRASILIA, April 29 (Reuters) - Lending growth in Brazil accelerated in March from the previous month, boosted by an increase in government-mandated loans for housing and other activities.
Outstanding loans in Brazil's banking system rose 1 percent in March from the prior month, the central bank said in a report on Tuesday.
The so-called earmarked loans, or credit aimed at investments and homebuilding in accordance with government mandates, rose 1.4 percent from February, while non-earmarked loans increased 0.67 percent.
Disbursements at Brazilian private-sector banks rose about 5.4 percent in the 12 months through March, compared with 21.2 percent at state-run lenders, the report added.
President Dilma Rousseff has used state banks to push down Brazil's credit costs, among the world's highest for a major economy, while fostering competition with private banks.
BORROWING COSTS RISE, DEFAULTS STABLE
The average cost of borrowing for non-earmarked loans in the banking system, a gauge of how much Brazilians pay in interest for a loan, rose to 31.6 percent, the highest level in two years, according to the report.
The spread, or the difference between the rate at which banks lend money and that at which they pay for deposits, widened to 19.8 percentage points from 19.7 percentage points in February.
Borrowing costs rose as the central bank raised the benchmark overnight Selic lending rate nine times in the past year to head off inflation. Spreads are probably widening less dramatically because of competition between private and public sector banks, analysts said.
Loans in arrears for 90 days or more, the industry's benchmark gauge for credit delinquencies, remained unchanged from February at 4.8 percent, the report said.
Loans made by all banks in Brazil totaled a record 2.760 trillion reais ($1.24 trillion) last month, the report showed. ($1 = 2.223 Brazilian reais) (Reporting by Luciana Otoni; Writing by Asher Levine; editing by James Dalgleish and Matthew Lewis)