Sales of previously owned homes unexpectedly fell in June to touch a seven-month low as cancellations of pending contracts surged, indicating continued weakness in the housing sector.

The National Association of Realtors said on Wednesday sales fell 0.8 percent last month from May to an annual rate of 4.77 million units, the lowest since November. May's sales were unrevised at a 4.81 million-unit rate.

Economists polled by Reuters had expected sales to rise to a 4.90 million-unit pace. Compared to June 2010, sales dropped 8.8 percent.

There is really nothing new to say about housing, the market continues to be really soft and demand is really definitely lackluster, said Sean Incremona an economist at 4CAST in New York.

There are plenty of headwinds facing housing and this continues to suggest that we are bumping along the bottom.

Stocks were little changed on the data, while bond prices added slightly to earlier losses. The dollar remained lower versus the euro and yen.

The drop in sales was a surprising given that pending home sales contracts rose in May, but the NAR noted the cancellation rate rose to 16 percent from 4 percent in May.

This was the highest since the NAR started tracking cancellations last year and was well above the usual rate of 9 percent to 10 percent, the NAR said.

Chief economist Lawrence Yun said it was unclear why cancellations had jumped in June, but added that the weak economy could have been a factor.

The decline in sales dampened hopes that a mild improvement was underway in a sector that has been plagued by an over supply of for-sale properties and falling prices.

Data on Tuesday showed groundbreaking for homes touched a six-month high in June, partly boosted by growing demand for rental apartments.

Continued housing market weakness is helping to constrain U.S. growth and June's soft sales could add to concerns about the economy's ability to swiftly rebound this quarter after stumbling badly in the first half of the year.

Government data next week is expected to confirm the economy lost further ground in the second quarter after a pedestrian 1.9 percent annual growth pace in the January-March period.

Despite the weak sales pace and a rise in the inventory of homes on the market, prices rose. The median home price climbed 0.8 percent in June from a year earlier to $184,300.

June's sales pace pushed the supply of existing homes on the market 9.5 months' worth, the highest since November, from 9.1 months' worth in May. A supply of between six and seven months is generally considered ideal.

(Reporting by Lucia Mutikani; Editing by Neil Stempleman)