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By Julie Haviv

NEW YORK, Dec 24 (Reuters) - Interest rates on U.S. 30-year fixed-rate mortgages dropped to their lowest level in 37 years this week, largely due to an unprecedented intervention by the Federal Reserve, according to a survey released on Wednesday by home funding company Freddie Mac (FRE.P: Quote, Profile, Research).

Interest rates on the 30-year fixed-rate mortgage dropped to an average of 5.14 percent for the week ending Wednesday, down from the previous week's 5.19 percent, Freddie Mac said.

The 30-year fixed-rate mortgage has not been lower since Freddie Mac started the Primary Mortgage Market Survey in 1971.

The battered U.S. housing market is critical to the U.S. economy, with a wide-ranging impact from the construction industry to the sale of appliances and furniture. After hurting growth for multiple quarters, an improvement in the housing market could portend a turnaround for the world's largest economy, which has been in a recession since late last year.

"Certainly lower mortgage rates improve affordability and could potentially give a boost to home sales down the road as well as help home prices find a floor," said Michelle Meyer, an economist at Barclays Capital in New York.

"Helping lower mortgage rates is just one source of ammunition for policymakers and we are expecting continued action to help stem foreclosures and stimulate new demand," she said.

The U.S. housing market is in the worst downturn since the Great Depression as a huge supply of unsold homes, tighter lending standards and record foreclosures push down home prices.