CORRECTED: Pending home sales unexpectedly rise

(Corrects paragraphs 1, 5 to say October drop was third, not second, largest year-over-year decline in pending home sales)

WASHINGTON (Reuters) - Pending sales of existing U.S. homes rose modestly in October, bucking Wall Street forecasts, but the decline from a year ago was the third largest on record, a real estate trade group said Monday.

The National Association of Realtors Pending Home Sales Index, based on contracts signed in October, was up 0.6 percent to 87.2 from an upwardly revised index of 86.7 in September.

Economists polled by Reuters before the report were expecting pending home sales to decline 1 percent.

The stronger-than-expected data helped U.S. stock prices extend gains in early morning trade.

Year-over-year, pending sales were down 18.4 percent, the third largest drop since the trade group began keeping such records in January 2001. A sale is said to be pending when a contract has been signed but the sale has not yet closed.

Lawrence Yun, the trade group's chief economist, said home sales and prices should level out next year after this year's declines.

Existing home sales should hit a pace of 5.70 million in 2008 compared to an expected 5.67 million this year, NAR said. It said median home prices would likely fall 1.9 percent this year, but rise 0.3 percent in 2008 to $218,300.

"Certainly, the market has turned .. far worse than I anticipated," Yun said, noting that NAR downwardly revised its homes sales volume several times this year.

Nationally, home prices in 2007 will suffer the first annual decline since the Great Depression, Yun said.

(Reporting by Patrick Rucker; Editing by Neil Stempleman)