CORRECTED - WRAPUP 1-Canada has small trade surplus,home prices up

* Trade surplus smaller than expected

* C$, strong domestic demand pressure exports

* House prices rise 0.3 pct in April, 10th straight rise (Corrects year-on-year new housing prices comparison to April from March in the second last paragraph)

By David Ljunggren

OTTAWA, June 10 (Reuters) - Canada recorded a smaller than expected trade surplus in April as a strong domestic currency hurt exports and demand for Canadian goods outside of the United States fell, government data showed on Thursday.

Other numbers showed continued strength in Canada's housing sector, with new home prices up for a 10th consecutive month, but the pace is expected to cool in the second half of the year as new taxes take a toll.

Statistics Canada said the nation notched a trade surplus of C$175 million ($168 million) in April after a revised C$236 million deficit for March. Analysts surveyed by Reuters had expected a surplus of C$500 million following the original report of a C$254 million surplus in March.

The value of exports dropped by 1.0 percent to C$32.93 billion, the second consecutive monthly decline, on a fall in the value of industrial goods and materials.

"If you look at the broader picture, it looks like the strong Canadian dollar and strong domestic demand in Canada is going to put downward pressure on net exports," BMO Capital Markets economist Robert Kavcic said.

"We saw net exports subtract from (economic) growth in the first quarter and much of 2009 and we'll probably see a small drag on growth going forward for the rest of 2010 as well."

Exports of energy products dropped by 2.6 percent to C$7.69 billion. Exports of natural gas dropped by 20.9 percent, reflecting lower prices and volumes after a mild winter.

Imports fell by 2.2 percent to C$32.76 billion, also due to a drop in industrial goods and materials. Metals and metal ores were the main contributors to the decline, in particular a 30.8 percent drop in precious metals.

The trade surplus with the United States remained steady at C$3.8 billion as exports rose by 0.7 percent, while imports advanced by 0.9 percent.

"It was exports to other countries that declined 5.5 percent and drove the headline lower. Note that exports to the EU plummeted 23.4 percent," Scotia Capital economists said in a research note.

With Canada exporting C$22 billion to the United States in April but just C$2.6 billion to the European Union, the drop in non-U.S. exports can get exaggerated, the economists said.

"In fact, this drives our point home: that improvements in the U.S. economy matter more to Canada than the EU's challenges given that exports to the EU account for 8.5 percent of the total whereas exports to the U.S. equal 72 percent of total exports," they wrote.

The Statistics Canada housing data showed prices of new homes rose 0.3 percent in April, matching March's increase and in line with expectations.

The prices, which do not include taxes, rose in 11 of the 21 metropolitan areas, fell in four, and were unchanged in six.

The nearly year-long boom in new house prices is expected to wane, however, as a harmonized sales tax is introduced in July in Ontario, Canada's most populous province, and the Western province of British Columbia, another big market.

"Strong gains in new house prices in the last couple of months isn't surprising because I think there is a lot of demand being pulled forward because of the HST in B.C. and Ontario," BMO Capital's Kavcic said.

"I think you'll probably see the new numbers start to cool in the second half of the year after the HST comes in and a lot of that demand that was pulled forward is out of the system," he said.

"We've actually started to see some early signs that the existing homes side of the housing market in Canada has started to cool pretty quickly."

The Bank of Canada's decision to leave its key interest rate at record lows for more than a year prompted some economists to warn of a potential housing bubble, although the government said it saw no signs of one developing.

The bank raised its key rate last week, and markets generally expect it to do so again next month.

On a monthly basis, the housing-only component of the new housing price index rose by 0.3 percent and the land-only component edged up 0.1 percent. New home prices rose 2.5 percent in April from a year earlier.

Cities in the western half of Canada generally posted the strongest gains from March, with prices in Regina and Saskatoon, both in Saskatchewan, rising by 0.9 percent each.

($1=$1.04 Canadian) (Additional reporting by Andrea Hopkins in Toronto; editing by Peter Galloway)