U.S. home resales surged in January to a 1-1/2 year high and the supply of properties on the market was the lowest in almost seven years, pointing to a nascent housing recovery.

The National Association of Realtors said on Wednesday existing home sales increased 4.3 percent to an annual rate of 4.57 million units last month, the highest since May 2010.

Overall this is not such a bad number. It's reflective of a better jobs market, but the improvement is going to be in fits and starts, said Yelena Shulyatyeva, U.S. economist at BNP Paribas in New York.

However, the tenor of the report was weakened somewhat by a sharp downward revision to December's sales data to show only a 4.38 million-unit rate rather than the previously reported 4.61 million-unit pace.

That followed an annual revision of the seasonal factors for the series going back three years. Sales in December actually fell 0.5 pct from November, instead of the 5 percent increase reported last month.

There were no revisions to monthly prices and inventory data. Economists polled by Reuters had expected sales to rise to a 4.65 million-unit sales pace.

Still, the report was the latest to add to tentative signs of improvement in the housing market. The inventory of unsold homes on the market is shrinking.

Last month, there were 2.31 million unsold homes on the market last month, the lowest since March 2005. That represented a 6.1 months' supply at January's sales pace, the lowest since April 2006 and down from 6.4 months in December.

A supply of 6 months is generally considered ideal. But the median sales price fell 2 percent to $154,700 in January from a year ago.

The Federal Reserve has suggested a number of ways other policymakers could step in to help the beaten-up market, including giving government-controlled mortgage finance firms Fannie Mae and Freddie Mac a bigger role in refinancing loans.

Distressed properties, foreclosures and short sales, which typically occur at deep discounts, accounted for 35 percent of overall sales last month, up from 32 percent in December.

A third of pending existing home sales contracts were canceled, the NAR said.

(Reporting by Lucia Mutikani; Additional reporting by Richard Leong; Editing by Neil Stempleman)

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