(Adds details, analyst comments, market reaction)
* Existing home sales rise 1.3 percent in April
* Home price appreciation slows, inventories increase
* Weekly jobless claims up 28,000, but underlying trend firm
WASHINGTON, May 22 (Reuters) - U.S. home resales rose in April and the supply of properties on the market hit its highest level in nearly two years, hopeful signs for the stalled housing market recovery.
The National Association of Realtors said on Thursday existing home sales increased 1.3 percent to an annual rate of 4.65 million units, marking only the second gain in sales in nine months.
While that was a bit less than the 4.68-million unit pace economists had expected, it suggested the sector was regaining its footing after stumbling in the second half of 2013 under the weight of higher mortgage rates and house prices.
"This report provides the first crucial sign that the housing recovery may be on the verge of a rebound," said Millan Mulraine, deputy chief economist at TD Securities in New York.
Sales remain down 15 percent from a peak of 5.38 million units hit in July. Compared to April last year, sales fell 6.8 percent.
Housing is one of the main channels through which the Federal Reserve is seeking to boost growth via its monthly bond purchases. The housing slump has prompted Fed Chair Janet Yellen to caution it could undermine the economy.
Expensive home loans and rising house prices have sidelined first-time buyers. Investors, who had buoyed the market by buying homes to rent them out, also are stepping back.
Though an usually cold winter depressed activity, a dearth of homes for sale also stymied demand. Sales are expected to gradually trend higher for the rest of 2014 as job growth and the overall economy accelerate.
Other reports on Thursday showed manufacturing activity accelerated in May, with financial data firm Markit's "flash" U.S. manufacturing purchasing mangers index rising to 56.2 from 55.4 in April.
Labor Department data showed initial claims for state unemployment benefits rose 28,000 to 326,000 last week. The four-week average, which irons out week-to-week volatility, rose by only 10,500, indicating the underlying jobs market trend remains strong.
LABOR MARKET FIRMING
"Initial claims remain in a range that suggests that labor market conditions are solid and the recent pace of job creation should continue," said Jim Baird, chief investment officer for Plante Moran Financial Advisors in Kalamazoo, Michigan.
U.S. stocks rose modestly and the dollar firmed against a basket of currencies. Prices for U.S. government debt fell.
The firming labor market and easing in mortgage rates should help to stimulate demand for housing. Last week, the 30-year fixed mortgage rate hit its lowest level since November.
And there are more reasons to be optimistic about housing.
The inventory of unsold homes on the market increased 6.5 percent from a year-ago to 2.29 million in April. That was the highest level since August 2012. The median home price rose 5.2 percent, the slowest pace since March 2012.
"The biggest story to come out of this report is the boost in home inventory, which has been one of the key issues holding back both buyers and sellers in the first part of this year," said Bill Banfield, vice president of Quicken Loans in Detroit.
The month's supply of existing homes increased to 5.9 months, the highest level since August 2012, from 5.1 months in March. Six months' supply is normally considered a healthy balance between supply and demand. (Reporting by Lucia Mutikani; Additional reporting by Jason Lange; Editing by Paul Simao)