US mortgage applications rise from 6-1/2-yr lows-MBA

NEW YORK, July 2 (Reuters) - U.S. mortgage applications rose last week with lower home loan rates spurring demand for home purchases and refinancing, an industry group said on Wednesday.

The bounce follows a 6-1/2-year low the previous week in a housing market struggling to gain traction.

The Mortgage Bankers Association said its seasonally adjusted application index rose 3.6 percent to 477.7 in the week ended June 27, as 30-year fixed mortgage rates slipped 0.06 percentage point from a 10-month high to 6.33 percent.

U.S. housing, caught in the worst downturn since the Great Depression, has been stuck in a vicious cycle that extended through the normally buoyant spring sales season.

Until home prices show signs of stabilizing, many economists agree there is little chance that home sales will rebound meaningfully.

Last week, credit ratings agency Standard & Poor's said its 20-city S&P/Case-Shiller home price index's slump deepened in April to stand nearly 18 percent below its July 2006 peak.

The spring months of March, April and May typically draw potential buyers from winter hibernation to start shopping for homes in earnest.

But with home prices falling steadily and record foreclosures pushing more unsold supply on the market, depressing prices further, many buyers remain unwilling to commit to what could be a fast depreciating asset.

Even those who are willing buyers are still finding it difficult to get mortgages approved by lenders who have become more restrictive as mortgage defaults escalate.