U.S. home prices were unchanged in October, according to the widely watched Standard & Poor's/Case-Shiller indexes released on Tuesday, indicating stabilization in the hard-hit housing sector though the figures dashed hopes for a sixth straight monthly increase.

The S&P composite index of home prices in 20 metropolitan areas was flat in October, falling short of expectations for a rise of 0.2 percent according to a Reuters survey. September's index was revised upward to a gain of 0.4 percent, from a previously reported 0.3 percent.

Only seven of the 20 cities in the composite index had month-over-month gains in prices in October, S&P said.

A sustained upturn in home prices is seen vital in the fledgling rebound in the hardest hit housing market since the Great Depression. There has been growing concern that record-high levels of foreclosures will mount even further and depress prices anew.

The stock market opened higher after the data and analysts said the numbers showed the housing market is stabilizing.

The report signals that we have a growing stabilization in house prices. Obviously it's at a very slow pace and that is because the market is still saddled with a significant amount of inventory, said Anna Piretti, senior U.S. economist at BNP Paribas.

We're likely to see some negative cross currents come into home prices in November, but that doesn't really change the trend--the trend should be toward stabilization.

S&P said the annual rate of price declines improved, with the 20-city index dropping 7.3 percent from a downwardly revised 9.3 percent in September. A 7.2 percent downturn was forecast in the Reuters survey.

All 20 metropolitan areas and both the 20-city and 10-city indexes showed smaller rates of decline in October compared with September.

The turn-around in home prices seen in the spring and summer has faded with only seven of the 20 cities seeing month-to-month gains, although all 20 continue to show improvements on a year-over-year basis, David M. Blitzer, chairman of the index committee at S&P, said in a statement.

S&P said its 10-city composite index was also unchanged in October and fell 6.4 percent in the year. The 10-city index rose 0.5 percent in September.

Average home prices have returned to levels last seen in the autumn of 2003.

From the peak in the second quarter of 2006 through the trough in April 2009, the 10-city index has fallen 33.5 percent the 20-city has dropped 32.6 percent.

After the price improvement over the past six months, total price declines from 2006 highs through October are 29.8 percent for the 10-city index and 29.0 percent for the 20-city index.

S&P's Blitzer said that while the numbers may spark worries that housing prices could be poised for a second dip, he sees little risk of that occurring because of the U.S. Federal Reserve's current monetary policy.

Before jumping to conclusions, recognize that the one time that happened at the beginning of the 1980s Fed policy saw dramatic reversals, which is very different from the stable and consistent Fed policy we have today, Blitzer said.

Las Vegas was worst-performing market. Prices have declined for 38 straight months, dropping 55.4 percent from the peak to just about 5 percent above their January 2000 levels, S&P said.

(Additional reporting by Emily Flitter; Editing by Leslie Adler)