Sales of previously owned homes rose more than expected in April to a five-month high as buyers rushed to close contracts before the expiry of a homebuyer tax credit.

The National Association of Realtors said on Monday sales rose 7.6 percent month-over-month to an annual rate of 5.77 million units, the highest since November, from a slightly upwardly revised 5.36 million-unit pace in March.

Analysts polled by Reuters had expected April sales to increase 5.6 percent to a 5.65 million-unit pace from the previously reported 5.35 million units in March. Sales were up 22.8 percent in the 12 months to April.

U.S. stocks briefly pared losses after the report, while prices for government debt were little changed. The U.S. dollar firmed against the euro.

The upswing in April sales was expected because of the tax credit inducement, and no doubt there will be some temporary fallback in the months immediately after it expires, but there are other factors supporting the market, said Lawrence Yun, chief economist at NAR.

Prospective homeowners had to sign contracts by April 30 to benefit from a federal tax credit for home buyers. They have to close the purchases by the end of June to qualify for the credit.

The critical issue going forward is whether the housing market will be able to stand on its own legs without government support, said Torsten Slok, a senior economist at Deutsche Bank in New York.

The tax credit has brought forward sales and a lull in activity is likely in the months ahead. Data from the Mortgage Bankers Association last week showed demand for loans to buy homes slumped to a 13-year low in the aftermath of the deadline to sign contracts.

Though the economy has now grown for three straight quarters following the worst recession in 70 years and mortgage rates remain near record low levels, the housing market's recovery is being held back by painfully high unemployment and a tide of home foreclosures.

PRICES HIGHEST SINCE SEPTEMBER

Distressed transactions, of homes that were sold below their market value, accounted for a third of sales last month, with first-time buyers making up 49 percent, the NAR said.

The national median home price rose 4 percent from April last year to $173,100 -- the highest since September.

Sales of single-family homes, the biggest segment of the market, rose 7.4 percent to an annual rate of 5.05 million units, also the highest since November. Condominium and co-ops jumped 9.1 percent to a 720,000-unit rate, a five-month high.

The inventory of existing homes for sale in April rose 11.5 percent to 4.04 million units, the highest since July, NAR said. At April's sales pace, that represented a supply of 8.4 months compared with March's 8.1 months.

Yun said it was unclear what was behind the surge in inventories, given that distressed properties accounted for only a third of sales last month. He said the housing price correction appeared to be over, though home values were unlikely to rise significantly because of the elevated level of inventories.

Separately, a measure of national economic activity last month rose to its highest level since December 2006, the Chicago Federal Reserve said. The Chicago Fed national activity index rose to 0.29 from 0.13 in March.

A reading above zero indicates the economy is growing above trend. However, the three-month moving average showed there was some economic slack, suggesting subdued inflationary pressure from economic activity over the coming year, the Chicago Fed said.

(Reporting by Lucia Mutikani, Editing by Chizu Nomiyama)