* Pending home sales rise 1.5 percent in June
* Midwest factory activity slows in July
WASHINGTON, July 31 (Reuters) - Contracts to buy previously owned U.S. homes rebounded in June after three straight monthly declines, but the housing market remained constrained by a shortage of properties available for sale.
Other data on Monday showed that factory activity in the Midwest slowed this month after hitting a three-year high in June, with manufacturers reporting declining orders.
The National Association of Realtors said its Pending Home Sales Index, based on contracts signed last month, jumped 1.5 percent, more than double economists' expectations for a 0.7 percent increase. The rise, however, only partially unwound the prior three months' declines.
Pending home contracts become sales after a month or two. The NAR reported last week that existing home sales, which generally have been running ahead of the signed contracts, fell 1.8 percent in June.
"In the very near term, the June increase in pending sales suggests that existing home sales will likely increase soon," said Daniel Silver, an economist at JPMorgan in New York. "But the June increase for the index undid only a portion of the decline reported over the prior few months."
Silver said he still expected the housing market recovery to continue over time despite recent weakness in some of the data, including homebuilder sentiment. The housing market has been stymied by a dearth of properties, which has pushed up prices and sidelined first-time homebuyers.
Housing contracted in the second quarter at its fastest pace in nearly seven years and was a drag on economic growth. Homebuilders have been unable to bridge the housing inventory gap, citing rising lumber costs and shortages of land and labor.
REGIONAL MANUFACTURING COOLING
Pending home sales increased 0.5 percent from a year ago. In June, contracts rose 0.7 percent in the Northeast and advanced 2.1 percent in the South. They shot up 2.9 percent in the West but fell 0.5 percent Midwest.
The PHLX housing index fell slightly after the data and the U.S. dollar hit a session low against a basket of currencies. U.S. stocks were trading mixed and prices of U.S. Treasuries were lower.
In a separate report on Monday, the Institute for Supply Management Chicago said its MNI Chicago Business barometer fell to a three-month low of 58.9 in July from a reading of 65.7 in June. A reading above 50 indicates expansion in manufacturing in the Chicago area.
The report mirrored other regional manufacturing surveys that have shown softening in activity. Some of the moderation reflects the fading boost from the energy sector after a recent drop in crude oil prices. The Institute for Supply Management will publish its July survey of U.S. manufacturing on Tuesday.
"Regional manufacturing surveys suggest that activity in the factory sector remained solid in July, but growth moderated," said John Ryding, chief economist at RDQ Economics in New York.
"We look for a similar message in tomorrow's national ISM manufacturing survey."
The drop in sentiment in the ISM-Chicago survey was broad-based this month. The survey's measure of new orders received by factories fell 11.6 points to a reading of 60.3, the lowest since February. The production index fell 6.9 points to 60.8.
A measure of order backlogs fell 4.9 points from June's 23-year high to a reading of 57.9 in July. Suppliers took slightly less time to deliver key inputs. In response to a special question on wages, over 70 percent of manufacturers said they had increased their workers' salaries over the past year.
A quarter of them said they had kept wages unchanged while 3 percent said they had cut their workers' paychecks. (Reporting by Lucia Mutikani; Editing by Paul Simao)