* Santander reports earnings before Madrid market open
* 2013 profit seen up 98 pct at 4.54 bln eur - poll
* Q4 2013 profit seen tripling to 1.23 bln eur- poll
* Q4 NII seen up 1 pct vs prior 3 mnths at 6.34 bln eur
* High dividend payouts under scrutiny
By Sarah White
MADRID, Jan 30 Spain's Santander, the euro zone's biggest bank, is expected on Thursday to report improved income from lending in the fourth quarter, as investors scan earnings for signs of a turnaround in its home market and its Brazilian business.
Profits at Santander, which has weathered Spain's five-year-old property market slump thanks to profits from overseas units, were helped last year by lower provisions on real estate losses compared with 2012.
Net profit for 2013 is forecast to nearly double to 4.54 billion euros ($6.2 billion), according to the average of estimates from analysts polled by Reuters, while fourth-quarter net is seen tripling to 1.23 billion, partly due to a gain on the sale of half its asset management business.
Like other Spanish banks, Santander is benefiting as the domestic economy emerges from a prolonged recession. Although bad debts are still rising, the pace is slower than in early 2013 for most banks.
Equally, net lending income (NII) - a measure of earnings from loans minus funding costs - is seen improving at many Spanish lenders in the fourth quarter compared with the third, as deposit rates fall.
At a group level, Santander's fourth-quarter NII is expected to grow around 1 percent from the previous three months to 6.34 billion euros.
For Brazil, which contributes about a quarter of Santander's earnings, analysts have also been eyeing signs that loan defaults are on the wane.
Santander Brasil's fourth-quarter recurring profit was expected to slip 5.6 percent to 1.33 billion reais on a quarterly basis, a Reuters poll showed.
Shareholders will also be bracing for an update on Santander's dividend policy.
While many global banks cut payouts after the 2008 financial crisis, Santander kept its dividends. But its payouts as a percentage of profits hit around 276 percent in 2012 and many analysts believe payouts are still unsustainably high.
Santander shares, which closed little changed at 6.385 euros on Wednesday, are up 8.2 percent through the past 12 months against a 14.5 percent rise in Spain's blue-chip Ibex index .
($1 = 0.7319 euros) (Editing by Sonya Dowsett and David Holmes)