UPDATE 1-US mortgage applications rise on refinancing -MBA

(Adds quotes, additional data)

By Julie Haviv

NEW YORK, Oct 15 (Reuters) - U.S. mortgage applications rose for a second consecutive week, reflecting a jump in demand for home loan refinancing even as interest rates surged the most in more than five years, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Oct. 10 increased 5.1 percent to 489.3.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.47 percent, up 0.48 percentage point from the previous week.

Interest rates were above year-ago levels of 6.40 percent.

It was the third largest interest rate increase since the MBA started conducting a weekly survey in 1990 and the most since the week ended Aug. 1, 2003 when it rose by 0.50 percentage point.

The biggest interest rate climb on record occurred in the week ended Oct. 9, 1998 when it rose by 0.60 percentage point.

"Treasury yields were extremely volatile last week. The yield on the 10-year Treasury note -- the benchmark for 30-year fixed mortgage rate -- moved up about 40 basis points over the course of the week," Orawin Velz, the MBA's associate vice president of economic forecasting, said in a statement.

"Lower yields earlier in the week appeared to have spurred refinance activity, which then faded as the week went on and rates began to rise." she said.

Treasury yields, which move inversely to price, are linked to mortgage rates. Treasury yields have climbed higher in recent days, largely due to concerns about increased government borrowing to finance its huge bank rescue package, which includes investing $250 billion in U.S. banks.

Higher interest rates should put downward pressure on both purchase and refinancing activity, according to Adam York, economic analyst at Wachovia Corp in Charlotte, North Carolina.

"The housing market is very weak and people are not looking to make a big purchase right now given what is going on in the economy," he said.

"Additionally, credit standards are extremely tight and people may be filling out more applications than they normally would, which could be skewing the data," he said.

The MBA's seasonally adjusted purchase index fell 0.3 percent to 313.5. The index came in well below its year-ago level of 429.1, a drop of 26.9 percent.

Overall mortgage applications last week were 25.4 percent below their year-ago level. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 7.9 percent.