Pending sales of existing homes fell less than expected in August despite rock-bottom mortgage rates, underscoring the difficulties policymakers face in helping the struggling housing sector.

The National Association of Realtors said on Thursday that its pending home sales index, based on contracts signed in August, was down 1.2 percent to 88.6, its lowest since April.

Analysts polled by Reuters ahead of the report were expecting sales to decline 1.8 percent.

Hurricane Irene, which battered the Northeast at the end of the month, was likely a factor in the decline. Sales in the Northeast fell 5.8 percent.

But the NAR's chief economist Lawrence Yun said tight credit was also holding back the overall housing market.

Banks clamped down on credit when the financial crisis struck in 2007 and credit conditions remain restrictive for many households.

The housing market is basically stuck at a low level. I don't see any evidence that sales will fall much further, but there is no rebound yet either, said Jim O'Sullivan, chief economist at MF Global in New York.

The U.S. Federal Reserve slashed interest rates during the crisis and has continued to break out new tools to try to get banks to lend more to help the economy recover from recession.

Last week it unveiled measures to boost lending to home-buyers but analysts caution that the level of mortgage rates is not the main hurdle to buying.

The Fed's low interest rate policies have helped push 30-year mortgage rates to their lowest since at least 1971, when mortgage finance provider Freddie Mac started tracking them. This week they hit a record low 4.01 percent.

Many economists are skeptical attempts to lower rates will help much because millions of Americas owe more on their mortgages than their homes are worth, which can effectively chain them to their properties while also preventing them from refinancing to lower their monthly costs.

The White House is also trying to work out a plan to help the depressed sector. The administration is working with the Federal Housing Finance Agency, a regulator, to try to expand a program that helps distressed borrowers with government-backed loans.

Some other government props for the sector, however, are set to fall away. At the end of this month, the size of the loans federal housing agencies can back will fall and next year government-controlled mortgage finance companies Fannie Mae and Freddie Mac will begin to raise fees on the loans they purchase.

(Reporting by Jason Lange; Editing by James Dalgleish)