WASHINGTONWASHINGTON (Reuters) - U.S. home sales rose more than expected in July, boosted by lower mortgage rates and a strong labor market, signs the Federal Reserve's shift toward lower interest rates was supporting the economy.

A separate report released by the Labor Department on Wednesday suggested the level of employment in the country was slightly lower than previously estimated, taking a bit of the shine off the labor market.

Despite headwinds from a global economic slowdown, the U.S. housing market appears to be strengthening.

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The National Association of Realtors said existing home sales rose 2.5% to a seasonally adjusted annual rate of 5.42 million units last month. June's sales pace was revised slightly higher to 5.29 million units from the previously reported 5.27 million units.

Economists polled by Reuters had forecast existing home sales would rise to a rate of 5.39 million units in July.

The housing sector data appeared to have little impact on stock prices, which rose following upbeat earnings from retailers Lowe's Cos Inc (LOW.N) and Target Corp (TGT.N) that reinforced confidence in consumer demand.

RATE CUT

Last month's increase left existing home sales, which make up about 90 percent of U.S. home sales, higher than they were a year earlier for the first time in 17 months. The U.S. home market slipped into a rut last year as the U.S. central bank continued a rate-hiking campaign.

After raising rates in December, the Fed later signaled it was done with the tightening, and by July the central bank switched gears completely, cutting rates for the first time since 2008 in a bid to keep a global downturn from causing a U.S. recession.

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The rate cut came despite the U.S. unemployment rate being at its lowest level in nearly 50 years. The Labor Department reported on Wednesday that the overall level of employment was 0.3% lower in March, or 501,000 fewer jobs, than previously estimated.

This preliminary estimate will be refined and incorporated early next year into the Labor Department's estimates for job gains through 2019, which have been robust although on average slower than in 2018.

Last month, existing home sales rose across the country except for the Northeast, the NAR said.

The 30-year fixed mortgage rate dropped to an average of 3.77% in July from more than a seven-year peak of 4.94% in November, according to data from mortgage finance agency Freddie Mac. The average rate fell to 3.6% in the Aug. 15 week and rates could decline further as the Fed is expected to cut rates in September due to concerns about economic weakening.

There were 1.89 million previously owned homes on the market in July, down from 1.92 million in June and a 1.6% decrease from July 2018. The median existing house price increased 4.3% from a year ago to $280,800 in July.

Against the backdrop of tight inventories and a persistently faster rise in prices of homes versus consumer goods, the recent sales boost likely "is not the start of a sustained upward trend," said Matthew Pointon, an economist at Capital Economics.

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At July's sales pace, it would take 4.2 months to exhaust the current inventory, down from 4.4 months in June. A six-to-seven-month supply is viewed as a healthy balance between supply and demand.

(Reporting by Jason Lange; Editing by Paul Simao)