Mortgage applications rose for a second straight week, fueled by demand for home loans as interest rates sank to their lowest since May, an industry group's figures showed Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, rose 5.5 percent for the week ended September 7.

Applications were 12.5 percent above their year-ago level. But the four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 0.8 percent to 634.2.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.25 percent, down 0.17 percentage point from the previous week, their lowest since the week ended May 18 when they stood at 6.23 percent. Interest rates were also below year-ago levels at 6.32 percent.

Yields on 10-year U.S. Treasury notes, which are linked to mortgage rates, fell last week for a fourth straight week to a 19-month low as investors grew more confident the Federal Reserve will cut benchmark rates at its policy-making meeting on September 18.

The MBA's seasonally adjusted purchase index rose 5.2 percent to 448.0. The index was 9.2 percent above its year-earlier level.

The group's seasonally adjusted index of refinancing applications rose to 1,876.6, 6 percent above the prior week. The index was up 17.5 percent from a year earlier.

REFINANCINGS SHARE UP

The refinance share of applications increased to 42.1 percent from 41.4 percent the previous week.

Last week, fixed 15-year mortgage rates averaged 5.90 percent, falling 0.2 percentage point from 6.10 percent.

Rates on one-year adjustable-rate mortgages (ARMs) decreased to 6.34 percent from 6.52 percent. Rates on ARMs fell for the first time in five weeks.

The ARM share of activity increased to 13.2 percent, up from 12.6 percent the previous week.

The MBA's survey covers about 50 percent of all U.S. retail residential loans. Respondents include mortgage banks, commercial banks and thrifts.

Recent U.S. housing industry indexes, while volatile, generally point to a weak outlook for the industry, suggesting a delayed recovery for the hard-hit sector.

Mortgage