Contracts to purchase previously owned U.S. homes neared a two-year high in January, an industry group said on Monday, further evidence the housing market was slowly turning the corner.

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in January, increased 2 percent to 97.0 - the highest reading since April 2010. New contracts generally lead sales by a month or two.

Housing data ranging from home building to resale's have been relatively upbeat, buttressing other signs of underlying economic strength that should help the U.S. recovery better handle rising gasoline prices and a recession in the euro zone.

The housing market is becoming less of a drag on the economy and home construction is expected to add to growth this year for the first time since 2005.

Clearly we had better weather conditions in January that might have helped, but we have a situation where we are seeing a number of housing statistics turn, said Michael Strauss, chief economist at Commonfund in Wilton, Connecticut. It suggests housing is going to be an additive to GDP this year.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Graphic on Jan U.S. pending home sales: http://link.reuters.com/kyv76s

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

HOUSING HEALING

December's pending home sales index was revised to show a much smaller 1.9 percent drop instead of the previously reported 3.5 percent decline. In January, new contracts were up 8.0 percent from their year-ago level.

The rise in last month's index suggested home resales would increase for a second consecutive month in February, and it also bodes well for the spring sales season.

This spring we expect to see continued forward momentum in the housing market as excess inventory is absorbed and low-cost mortgage debt becomes more prevalent, said John Tashjian, principal at Centurion Real Estate Partners in New York.

A strong spring housing season will be a critical indicator toward predicting growth in the housing market for 2012.

The market has been hampered by an oversupply of unsold homes, but the number of both new and previously owned properties for sale has been whittled down in recent months.

But with the foreclosure tide yet to recede and continuing to depress prices, recovery will be a long, drawn-out affair. A report due on Tuesday is expected to show that prices in 20 U.S. metropolitan areas tracked by S&P/Case Shiller fell by 0.5 percent in December after declining by 0.7 percent in November.

Yelena Shulyatyeva, an economist at BNP Paribas in New York, said the housing market has likely received some recent support from buyers hoping to lock in mortgages before loan guarantee fees charged by housing finance firms Fannie Mae and Freddie Mac go up in April.

Pending home sales rose strongly in the Northeast and South, but fell in the Midwest and West.

Shulyatyeva cautioned that not all of the sales would likely go through. Recently, existing home sales have been running much lower than pending sales as one third of them currently end up in a contract failure, she said.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

BNP Paribas