Co-channel interference (CCI) is becoming a challenging factor that causes performance degradation in modern communication systems. The receiver equipped with multiple antennas can suppress such interference by exploiting spatial correlation. However, it is difficult to estimate the spatial covariance matrix (SCM) of CCI accurately with limited number of known symbols. To address this problem, this paper first proposes an improved SCM estimation method by shrinking the variance of eigenvalues. In addition, based on breadth-first tree search schemes and improved channel updating, a low complexity iterative detector is presented with channel preprocessing, which not only considers the existence of CCI but also reduces the computational complexity in terms of visited nodes in a search tree. Furthermore, by scaling the extrinsic soft information which is fed back to the input of detector, the detection performance loss due to max-log approximation is compensated. Simulation results show that the proposed iterative receiver provides improved signal to interference ratio (SIR) gain with low complexity, which demonstrate the proposed scheme is attractive in practical implementation.