Pending sales of existing U.S. homes fell sharply in January, with the index dropping to a record low, according to a report on Tuesday that showed the deteriorating economy was keeping buyers on the sidelines.

Economists polled by Reuters had forecast pending home sales to fall 3.0 percent in January. December's pending home sales index was modestly revised down to 87.1.

U.S. stocks trimmed gains on the housing data, while the dollar pared losses against the euro.

Compared with the same period a year-ago, pending home sales were down 6.4 percent in January.

Even with many serious potential home buyers on the sidelines waiting for passage of the stimulus bill, job losses and weak consumer confidence were a natural drag on home sales, said Lawrence Yun, NAR chief economist.

We expect similarly soft home sales in the near term, but buyers are expected to respond to much improved affordability conditions and from the $8,000 first-time buyer tax credit.

The NAR's housing affordability index surged 13.6 percentage points in January to 166.8, the highest since tracking began in 1970.

The Obama administration last month unveiled a $275 billion program to stem a wave of home foreclosures, which many hope will lend some stability to the housing market, at the center of the economic rout.

(Reporting by Lucia Mutikani; Editing by Tom Hals)