WASHINGTON (Reuters) - Pending sales of previously owned US homes fell more sharply than expected in November, but a surge in new factory orders offered assurance the economic recovery remained on track.

Initial results from automakers showed December's sales on track to be the strongest since the summer's "cash for clunkers" programme.

The National Association of Realtors said yesterday its Pending Home Sales Index, based on contracts signed in November, dropped 16 percent from October to 96.0 after rising for nine straight months.

Analysts, who had looked for a decline of only two percent, blamed the drop on the end of a rush to beat the original expiration of a popular tax credit. They said the fact the index was up 15.5 percent from its year-ago level indicated the housing market continued to heal.

A separate report from the Commerce Department showed new orders at US factories rose 1.1 percent in November. It was their third straight monthly increase and financial markets had expected a 0.5 percent gain.

The data came a day after a report showed factory activity in December rose to its highest level since April 2006.

"It goes along with what we've been seeing, a slight improvement in the economy overall and it's gaining some breadth ... particularly on the manufacturing level," said Bruce Bittles, chief investment strategist at Robert W. Baird & Co. in Nashville.

The slump in pending home sales, which lead actual sales by a month or two, rekindled concerns the housing market could falter once government support is withdrawn.

The housing data weighed on US stock prices, with major indexes down in afternoon trade, and supported prices for safe-haven US government debt. The US dollar fell sharply against the yen.

Home sales have been boosted by an $8,000 tax credit for first-time home buyers. The popular tax credit, originally scheduled to expire at the end of November, has been extended to mid-2010.

The tax credit has caused volatility in November data and sent conflicting signals on the housing sector's recovery from a collapse that sent the economy reeling.

Reports last month showed sales of previously owned homes continued to rise in November, but purchases of new homes slumped. Mortgage rates have steadily risen in recent weeks and the 30-year rate hit its highest level since August last week.

"Sales should rebound going forward. Nevertheless, this report suggests that the recent strength of housing demand is still far from becoming self-sustaining and that the housing market remains overly dependent on government support," said economist Anna Piretti.