UPDATE 2-Canada housing starts reverse in April, fall 20 pct

* Starts revert to downward trend set last year

* Urban multiples tumbles 32.7 pct

* Single family home starts fall 8.7 pct (Adds background and analysts' comment)

By Ka Yan Ng

TORONTO, May 8 (Reuters) - Canadian housing starts fell 19.9 percent in April from March, returning to a downward trend that began last year, largely on a sharp drop in construction of condos.

Housing starts dropped to a seasonally adjusted annualized rate of 117,400 units from a revised 146,500 units in March, Canada Mortgage and Housing Corp. said.

The March figure was originally reported at 154,700 units, which broke a six-month losing string of falling starts.

The number of starts for April were well below the average forecast of economists polled by Reuters who had called for 140,000 starts.

"New home construction is now at a more sustainable level after having been exceptionally strong over the past seven years, exceeding 200,000 units per year," the CMHC said.

April's reversal for starts came as no surprise to the market after a surprisingly robust March, and the trend downwards is expected to go on for some time.

"At the end of the day, the economic fundamentals continue to point to further weakness in Canadian housing activity, and as such we believe the level of starts could continue to be under pressure," Ian Pollick, an economics strategist at TD Securities, said in a note to clients.

The Canadian dollar was relatively unchanged by the report, having been sandwiched by the top tier data of better-than-expected Canadian and U.S. jobs reports. [ID:nN08444159]

Still, economists said the silver lining of falling housing starts is that inventory will be contained during the recession.

"On the upside, during a recession one does not want to see the building sector dumping new supply onto an already depressed market place," Stewart Hall, an HSBC Securities economist, said in a statement.

Urban single family home starts had a much milder drop of 8.7 percent to 42,100 units in April.

But it was the urban multiples component that drove the number of overall starts lower. New construction of multiple dwellings, such as condos, tumbled 32.7 percent to an annual rate of 54,700 units in April.

Most of the decline occurred in the condominium segment in Ontario, the country's most populous province. The province also led all regions in lower new home construction for the month with a 43.7 percent drop in April.

Atlantic Canada followed with a 16 percent drop in starts, while Quebec fell 7.1 percent in Quebec. The Prairies reported a 3.0 percent fall in new home construction.

Only British Columbia edged higher with a 1 percent increase in urban starts.

Rural starts were estimated at an annual rate of 20,600 units in April. (Reporting by Ka Yan Ng; Editing by Jeffrey Hodgson)