The Commerce Department said on Wednesday sales slipped 0.3 percent to a seasonally adjusted 373,000-unit annual rate, but the decrease was from an upwardly revised 374,000-unit July pace that was the fastest since April 2010.

From a year ago, sales were up 27.7 percent last month.

At the same time, the median price of a new home increased a record 11.2 percent in August to $256,900 -- the highest level since March 2007. Compared to August last year, the median sales price jumped 17 percent, the largest rise since December 2004.

The report was in keeping with other data that have suggested a turn-around in the housing market, which collapsed in 2006, igniting the 2007-09 recession.

Home resales surged last month, homebuilder sentiment jumped to a six-year high in September and home prices in 20 major metropolitan areas rose in July for a sixth straight month, recent reports have shown.

Still, the housing market lacks sufficient strength to take the baton from the faltering manufacturing sector as the main driver of the U.S. economic recovery.

"There are increased signs that the housing recovery is now on a more sustainable path, though its impact on overall economic activity will remain relatively modest at best over the near-term," said Millan Mulraine, a senior economist at TD Securities in New York.

U.S. financial markets were little moved by the data amid worries Spain's reluctance to ask for a full-blown bailout would prolong Europe's debt crisis. However, an index of housing-related stocks fell as the pace of home sales was not as strong as expected.

MISSING PISTON

The Federal Reserve targeted housing this month as a channel to spur faster economic growth.

Fed Chairman Ben Bernanke said housing was the "missing piston" in the recovery and the central bank announced it would buy $40 billion in mortgage-backed securities per month until the outlook for employment improved significantly.

Those measures have pushed mortgage rates to record lows, and led to a rebound in demand for loans to purchase homes last week, a second report showed. Fixed 30-year mortgage rates hit an all-time average low of 3.63 percent last week.

Home building is expected to add to gross domestic product growth this year for the first time since 2005.

Home builder Lennar Corp on Monday reported a 44 percent jump in orders for new homes during the third quarter, the sixth straight quarter of growth.

While residential construction accounts for only about 2.5 percent of GDP, economists estimate that for every new house built, at least three new jobs are created.

In addition, economists said rising home values could support consumer spending.

"The turn in home prices is important, not only because the housing industry is an important employer, but also the wealth effect created by rising home prices can lift consumer spending on other big-ticket items," said Steven Ricchiuto, chief economist at Mizuho Securities in New York.

The housing recovery is being driven by dwindling supplies of homes on the market, especially distressed properties that tend to sell well below their cost of construction.

Home builders are also keeping inventories lean.

The inventory of new homes on the market held near record lows last month. At August's sales pace it would take 4.5 months to clear the houses on the market, unchanged from July.

"For years after the collapse in housing, home builders have kept very lean inventories of new homes so any marginal pickup in sales activity leads to a notable pickup in building," said Ellen Zentner, a senior economist at Nomura Securities International in New York.

New home sales were up in three of the four regions, surging 20 percent to a near two-year high in the Northeast. Sales in the South fell 4.9 percent.

(Editing by Andrea Ricci and Tim Ahmann)

• A Permanent Economic Emergency