By Al Yoon and Lynn Adler

NEW YORK (Reuters) - Applications for U.S. home mortgages rose last week to their highest level since early June, an industry group said on Wednesday, though analysts stressed the underlying trend in housing was still tenuous.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity increased 7.5 percent to 513.4 in the week ended July 4. The data was adjusted to account for the Independence Day holiday, when banks and financial markets were closed.

The seasonally adjusted index of refinancing applications climbed 8.7 percent to 1,379.3 last week, while the gauge of loan requests for home purchases rose 6.7 percent to 365.8, the MBA said. Both indexes are also at their highest since the week ending June 6.

Analysts warned, however, that the strength in the most recent data might not last, as potential buyers are holding out for even lower home prices and many owners are unable to refinance as falling prices have wiped out their home equity.

"With home prices falling, prospective borrowers aren't jumping off the fence as quickly as they would have in the past given volatility in mortgage rates," said Greg McBride, senior financial analyst at Bankrate Inc. in North Palm Beach, Florida.

Fixed 30-year mortgage rates averaged 6.43 percent in the week, up 10 basis points from 6.33 percent the prior week.

Loan rates have been highly volatile since the spring, reflecting eruptions in the credit markets.

The average 30-year mortgage rate has fluctuated in a range of nearly 7/8 percentage point over the past four months -- having been as low as 5.74 percent in March and as high as 6.57 percent in June -- based on weekly MBA reports.