Sales of previously owned U.S. homes rose at their fastest pace in nearly six years in February, data showed on Monday, offering some hope to an economy battling a 15-month recession.

The National Association of Realtors (NAR) said sales rebounded 5.1 percent in February to a 4.72 million-unit annual rate, notching their largest gain since July 2003, but about 45 percent of these were foreclosure or short-sale transactions.

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This was above market expectations for a drop to a 4.45 million-unit pace after January’s 4.49 million rate. Compared to the same period last year, February sales were down 4.6 percent, the NAR said.

U.S. stocks, already rallying after the U.S. government released details of a plan to clean out toxic assets from banks’ balance sheets, extended gains on the housing data.

The housing market is at the core of the economic and financial meltdown and stabilizing it is seen as a key ingredient for the recovery from a recession that started in December 2007.

“Because entry level buyers are shopping for bargains, distressed sales accounted for 40-45 percent of transactions in February,” said NAR chief economist Lawrence Yun. “Distressed homes typically are selling for 20 percent less than the normal market price, and this naturally is drawing down the median price.”

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Sales were up in all four regions, with the West outperforming. In California, the median listing price rose for the first time in three years.

Government data last week showed a rebound in U.S. housing starts and new building permits in February.

“It suggests that the drop in prices and mortgages rates and an increase in affordability are having an impact in the market,” said Alan Gayle, senior investment strategist at Ridgeworth Investments in Richmond, Virginia.

“Stabilization in the housing market is critical for the economy to start, and this is a good report.”

There is hope that the government’s $272 billion package to stem the tide of foreclosures, together with aggressive efforts by the Federal Reserve to keep interest rates down could lay the foundation for the housing market’s recovery.

NAR’s Yun said the government’s stimulus package could add 1 million sales this year, but depressed levels of consumer confidence and rising unemployment could derail this projection.

The median national home price declined 15.5 percent in February from a year ago to $165,400, the second biggest decline on record.

The inventory of existing homes for sale rose 5.2 percent to 3.80 million from the 3.61 million overstock reported in January. That represented 9.7 months’ supply at the current sales pace, unchanged from January.

Analysts said reducing this stock of unsold homes was critical for the housing market’s recovery.

“An overhang of inventory will continue to plague the market, putting downward pressure on prices and construction activity for some time to come,” said Adam York, an economist at Wachovia in Charlotte, North Carolina.

“The housing market will remain stressed until more reasonable inventory levels are restored.”

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