By Fiona Shaikh

LONDON (Reuters) - House prices fell a smaller-than-expected 0.5 percent in June, taking the annual rate of decline to an 11-month low of 12.5 percent, figures from mortgage lender Halifax showed on Wednesday.

June's monthly fall came after a 2.6 percent rise in May and contrast with figures from rival mortgage lender Nationwide only last week, which showed house prices rose by 0.9 percent last month.

Halifax said although there were signs housing market activity was stabilising, the uncertain economic outlook meant house prices were likely to be volatile in the coming months.

"Overall, we expect to see a continuing mixed pattern of monthly house price rises and falls over the remainder of 2009," said Halifax economist Martin Ellis. "Although activity is showing signs of improving, it is still at a very low level historically."

But some economists were sceptical whether the downward trend in house prices was over.

"The Halifax data reinforce our doubts that house prices have bottomed out and we certainly do not think that we are now at the start of a renewed sharp upward trend," said Howard Archer, economist at IHS Global Insight.

The figures are another indication that the economy is still some way off a recovery, and as such monetary policy is likely to remain loose for a while.

The Bank of England has slashed borrowing costs to a record low of 0.5 percent and many economists think it may decide to expand its 125 billion pound quantitative easing programme at its two-day monthly policy meeting which kicks off on Wednesday.