Corrects single-family home sales fall to 9.6 percent from 10.0 percent in penultimate paragraph

Sales of previously owned U.S. homes fell unexpectedly sharply in February and prices touched their lowest level in nearly nine years, implying a housing market recovery was still a long way off.

The National Association of Realtors said on Monday sales fell 9.6 percent month over month to an annual rate of 4.88 million units, snapping three straight months of gains. The percentage decline was the largest since July.

Economists polled by Reuters had expected February sales to fall 4.0 percent to a 5.15 million-unit pace from the previously reported 5.36 million unit rate in January, which was revised slightly up to 5.40 million.

The median home price dropped 5.2 percent in February from a year earlier to $156,100, the lowest since April 2002.

If the price declines persist, even with the job market recovery, that could hamper recovery in the housing market, said NAR chief economist Lawrence Yun.

Compared with February last year, sales were down 2.8 percent.

Oversupply of homes and a relentless wave of foreclosures are pressuring prices, holding back recovery in the sector, whose collapse helped to tip the U.S. economy into its worst recession since the 1930s.

Foreclosures and short sales, which typically occur below market value, accounted for 39 percent of transactions in February, up from 37 percent the prior month. All-cash purchases made up a record 33 percent of transactions in February.

Sales last month fell across the board, with multifamily dwellings declining 10.0 percent and single-family home units dropping 9.6 percent.

At February's sales pace, the supply of existing homes on the market rose to 8.6 months' worth from 7.5 in January. A supply of between six and seven months is generally considered ideal, with higher readings pointing to lower house prices.

(Reporting by Lucia Mutikani; Editing by James Dalgleish)