UPDATE 1-Canada housing starts fall in May from April

* May starts 189,100 vs forecast of 200,000

* April revised slightly higher to 201,800 (Adds details, comment from analysts)

By Jeffrey Hodgson

TORONTO, June 8 (Reuters) - Canadian housing starts fell by a larger-than-expected 6.3 percent in May from April, suggesting the housing market rally that that helped pull the country out of recession is starting to stumble.

Housing starts fell in May to a seasonally adjusted annualized rate of 189,100 units from a revised 201,800 in April, Canada Mortgage and Housing Corp (CMHC) said on Tuesday.

The number of starts was below the consensus expectations of analysts, who had called for 200,000 starts in May. April's housing starts were originally reported at 201,700 units.

"Today's data suggest that the rebound in homebuilding activity from last year's recession is quickly running out of steam," Derek Burleton, deputy chief economist at TD Economics, said in a note to clients.

The seasonally adjusted annual rate of urban starts decreased by 9.5 percent to 165,200 units in May, with both multidwelling starts, which include high-rise condos, and single-family homes declining.

Urban housing starts declined in most parts of the country, falling 21.8 percent in the Prairie region, 13 percent in Quebec, 12.9 percent in British Columbia, and 2.7 percent in Ontario. Urban starts increased 23.3 percent in Atlantic Canada.

Rural starts were estimated at a seasonally adjusted annual rate of 23,900 units in May.

After taking a brief hit from the global financial crisis, Canada's housing sector rebounded sharply last year when the central bank cut interest rates to a record low, sending mortgage rates tumbling.

But many market players had forecast that home sales would slow in the latter part of 2010 due to higher interest rates, new mortgage rules and the introduction of harmonized sales tax regimes in Ontario and British Columbia. [ID:nN18184642]

On June 1, Canada became the first of the Group of Seven major industrialized countries to begin hiking interest rates following the global financial crisis, with the central bank raising its key rate by a quarter-point to 0.50 percent. [ID:nN01264788]

"Building is expected to slow markedly over the summer, as builders respond to the broader cooling in Canada's previously white-hot housing market," Doug Porter, an economist at BMO Capital Markets, said in a research note.

CMHC Chief Economist Bob Dugan said in a statement that May's decrease was consistent with the agency's forecast that housing starts for 2010 will reach 182,000 units. (Editing by Peter Galloway)