* Existing home sales rise 0.6 percent in April * Sales level highest since November 2009 * Tight inventories remain constraint to faster sales pace * Median home price highest since August 2008 By Lucia Mutikani WASHINGTON, May 22 (Reuters) - U.S. home resales rose in April to the highest level in nearly 3-1/2 years and prices surged, offering the economy a buffer from the stiff headwinds posed by belt-tightening by Washington. The National Association of Realtors said on Wednesday existing home sales advanced 0.6 percent to an annual rate of 4.97 million units, the highest level since November 2009. The data underscored the housing market's improving fortunes as it starts to regain its footing. Resales were 9.7 percent higher than in the same period last year. "It's quite supportive of the overall economy," said Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York. "It's a cushion against some of the other concerns in the economy." Economic activity appears to have slowed somewhat early in the second quarter as the effects of higher taxes and deep government spending cuts have started filtering through. Manufacturing, in particular, has been showing strains. But housing has held up surprisingly well, with the gains in home values helping to boost consumer confidence and retail sales. The ripples from housing's recovery have also extended to the jobs market, with construction employment rising. That should limit the degree to which the economy slows this quarter. It expanded at a 2.5 percent annual pace in the first three months of the year. Tight supplies in some parts of the country have constrained the pace of home sales, but sellers are starting to wade back into the market, attracted by rising prices. In April, the median home sales price increased 11 percent from a year ago to $192,800, the highest level since August 2008. It was the fifth consecutive month of double-digit gains. With prices rising, more sellers put their properties on the market. The inventory of homes on the market rose 11.9 percent from March to 2.16 million. SUPPLY STILL TIGHT The increased inventory represented a 5.2 months' supply at April's sales pace, up from 4.7 months in March. It remained, however, below the 6.0-month level that is normally considered a good balance between supply and demand. The market has been helped by monetary stimulus from the Federal Reserve that has kept mortgage rates near record lows. On Wednesday, Fed Chairman Ben Bernanke said a decision to scale back the $85 billion in bonds the Fed is buying each month could come at one of the central bank's "next few meetings" if the economy looked set to maintain momentum. The housing report had little impact on U.S. financial markets, with traders focused on Bernanke's comments. The dollar rose to a near three-year peak against a basket of currencies, while prices for U.S. government bonds slumped. Wall Street stocks fell, with the Standard & Poor's 500 index posting its biggest decline in three weeks. Adding to signs that the housing recovery was becoming firmly established, distressed properties - which can weigh on prices because they typically sell at deep discounts - accounted for only 18 percent of sales last month. That was the lowest since the Realtors group started monitoring them in October 2008. These properties, foreclosures and short sales, had made up 21 percent of sales in March. In another bright sign, properties are selling more quickly. The median time on the market for homes was 46 days in April, down from 62 days the prior month. That was the fewest days since the NAR started monitoring that number in May 2011. Before the market collapsed in 2006, it usually took about 90 days to sell a home. "While there are clearly a lot of interested buyers out there snapping up homes at a rapid clip, there do not seem to be enough homes on the market," said Omair Sharif, an economist at RBS in Stamford, Connecticut. About 44 percent of all homes sold in April had been on the market for less than a month, while only 8 percent had been on the market for a year or longer. Last month, first-time buyers accounted for 29 percent of the transactions, with investors buying 19 percent of homes. Investors, both individuals and institutions, are mostly buying homes for renting. Sales were up in three of the four regions, falling 3.4 percent in the Midwest.