Sales of previously owned U.S. homes took a record drop in July to their lowest pace in 15 years, suggesting further loss of momentum in the economic recovery.width=398

As the National Association of Realtors issued the report, Chicago Federal Reserve President Charles Evans warned that the risk of a double-dip recession was higher than six months ago although he did not think output would contract, describing the recovery as ongoing but modest.

Existing home sales dropped a record 27.2 percent from June to an annual rate of 3.83 million units, the lowest since May 1995. June's sales pace was revised down to a 5.26 million-unit pace from a previously reported 5.37 million.

Analysts polled by Reuters had expected sales to fall 12 percent to a 4.70 million-unit rate last month.

This is a worrisome report and while it reflects the volatility caused by the end of the (government home-buyer) tax credits, it also indicates a deterioration in the underlying trend for housing demand, said Michelle Meyer, senior U.S. economist at Bank of America Merrill Lynch in New York.

For the overall economy, the dangerous link to housing is home prices and this report signifies that home prices should fall considerably faster, which could tip the economy back into a recession. We are, however, not quite there yet but this is a worrisome report.

U.S. stocks .SPX added to losses on the report, while prices for safe-haven government debt extended gains. The U.S. dollar fell against the yen and euro.

The housing market has been mired in weakness following the end of a homebuyer tax credit in April, which pulled forward sales and building activity.

The surprisingly weak home sales data added to signs that the economy was rapidly losing strength, even though the drop may have been exaggerated by the end of a popular housing tax credit. Stubbornly high unemployment has burdened recovery from the longest and deepest recession since the Great Depression.

The government on Friday is expected to revise down growth in second-quarter gross domestic product to an annual pace of 1.4 percent from 2.4 percent, according to a Reuters survey.

The recovery which started in the second half of 2009 has largely been driven by government stimulus and manufacturing as businesses replenish depleted inventories.

With home sales tumbling, the inventory of previously owned homes for sale rose 2.5 percent to 3.98 million units from June, representing a supply of 12.5 months -- the highest since at least 1999 and up from June's 8.9 months.

The jump in the supply of homes was almost double the six to seven months' supply considered to be a healthy level.

Last month foreclosed properties accounted for 22 percent of sales while short sales made up 10 percent. First-time buyers accounted for 38 percent of transactions, the lowest in 12 months.

The national median home price rose 0.7 percent from July last year to $182,600.

(Reporting by Lucia Mutikani; Editing by James Dalgleish)