NEW YORK (Reuters) - Weekly applications for U.S. home mortgages fell to their lowest level in five months even as borrowing costs declined, according to data from an industry group released on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage activity for home purchases, a leading indicator of housing sales, fell 2 percent in the week ended on July 29 to its lowest level since late February.

Interest rates on 30-year fixed-rate mortgages, the most widely held type of U.S. home loans, declined last week in step with benchmark Treasury yields. <US10YT=RR>

Thirty-year loan rates hit a more than three-year low last month as longer-dated U.S. yields had fallen to historic lows on worries about global economic growth and immense overseas demand for U.S. bonds.

The MBA's seasonally adjusted gauge on refinancing applications fell 4 percent from the prior week. It reached its highest level since June 2013 in the week ended on July 8.

The group's seasonally adjusted index of total mortgage activity fell 3.5 percent from the previous week. It was down for the third straight week after hitting a three-year peak in July.

The share of weekly refinancing requests was 60.7 percent of total applications, compared with 61.1 percent the previous week, the Washington-based group said.

The average rate on "conforming" 30-year home mortgages, or loans with balances of $417,000 or less, fell to 3.67 percent last week from 3.69 percent, MBA said.

The average 30-year rate touched 3.60 percent in the week ended July 8, which was the lowest since May 2013 and not far from the historic low of 3.47 percent struck in December 2012, according to MBA data.

The benchmark 10-year Treasury yield <US10YT=RR> fell to a record low of 1.321 percent on July 6. It was 1.540 percent on Wednesday, up slightly from late on Tuesday, according to Reuters data.

(Reporting by Richard Leong; Editing by Lisa Von Ahn)