U.S. mortgage applications rose for a second consecutive week, driven by increased demand for home purchase loans as interest rates remained near a recent four-year high, an industry trade group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended July 7 increased 1.0 percent to 566.8 from the previous week's 561.0.

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Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.81 percent, up 0.01 percentage point from the previous week. Interest rates were just 0.05 percentage point below a four-year high reached two weeks prior.

The MBA's seasonally adjusted purchase mortgage index, considered a timely gauge of U.S. home sales, rose 2.6 percent to 425.0. Even so, it stood well below its year-ago level of 489.0.

The group's seasonally adjusted index of refinancing applications decreased 1.6 percent to 1,400.5. A year earlier the index stood at 2,554.3.

The refinance share of applications fell to 34.0 percent from 35.0 percent the previous week.

Fixed 15-year mortgage rates averaged 6.40 percent, down from 6.41 percent the previous week.

ADJUSTABLE RATES CLIMB

Rates on one-year adjustable-rate mortgages (ARMs) increased to 6.41 percent from 6.39 percent.

The ARM share of activity decreased to 28.7 percent of total applications from 29.5 percent the previous week.

Historically low mortgage rates have fueled a five-year housing boom, helping support the U.S. economy's recovery from recession despite uncertain business investment.

While analysts differ on whether or not there is a housing bubble, most agree that the market is cooling off from its record run.

The MBA's survey covers about 50 percent of all U.S. retail residential mortgage loans. Respondents include mortgage bankers, commercial banks and thrifts.

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