Canadian housing starts fell unexpectedly in July, dropping 4.1 percent from June and breaking a two-month run of gains, largely because of a drop in construction of multifamily dwellings.

Canada Mortgage and Housing Corp said on Tuesday that starts fell to a seasonally adjusted annualized rate of 132,100 units in July from a downwardly revised 137,800 units in June.

Analysts had forecast a rise to 145,000 starts. June starts were previously reported at 140,700 units.

The fall in July was attributed to a 9 percent decrease, to 61,000 units, in starts on urban multiple dwellings such as condos and apartment buildings. Single family homes dipped 1.1 percent to 52,500 units.

The figures paled against the buoyancy of recent data for existing home sales and building permits, but economists were encouraged that the July number was still above the average for the second quarter.

In the second quarter, starts averaged a 127,900 annualized pace so July's data shows a modest improvement from that level, said Dawn Desjardins, assistant chief economist at Royal Bank of Canada.

Canada's housing market is showing signs of emerging from its slump with the July level of housing starts putting the economy on track to record a quarterly increase for the first time since early 2008.

Rona Inc, Canada's biggest home-improvement chain, said on Tuesday that soft housing starts in the second quarter were partly to blame for its weak quarterly profit. It also said it remained cautious about recovery in the housing sector.

Starts increased 16.6 percent in Quebec in July, but fell in other regions. Urban starts dropped 17 percent in the Prairies, 15 percent in Ontario, 10 percent in British Columbia, and 1.4 percent in Atlantic Canada.

Rural starts were estimated at a seasonally adjusted annual rate of 18,600 units in July.

(Reporting by Ka Yan Ng; Editing by Peter Galloway)

Canada Fall