NEW YORK (Reuters) - A measure of U.S. mortgage application activity fell to its lowest level in nearly five months in the latest week even as 30-year mortgage rates declined from four-month highs, data from the Mortgage Bankers Association released on Wednesday showed.

The Washington-based industry group's mortgage market index on a seasonally adjusted basis fell 4.1 percent to 492.0 in the week ended Oct. 21, which was the lowest level since the week of May 27.

Interest rates on 30-year fixed-rate mortgages, which are the most widely held type of U.S. home loans, averaged 3.71 percent, down 2 basis points from the latest week, MBA said.

The group's seasonally adjusted index on weekly applications to buy a home fell 6.9 percent to 207.8 last week, which was the lowest since January.

The purchase activity gauge is seen as a proxy on home sales which have been encouraging.

In September, new home sales unexpectedly rose 3.1 percent, while home resales rebounded by 3.2 percent following back-to-back months of declines.

MBA's weekly barometer on refinancing requests declined by 2.3 percent to 2,122.5, which was the weakest since June.

The share of refinancing activity rose to 62.7 percent of total applications from 61.5 percent the previous week.

(Reporting by Richard Leong; Editing by W Simon and Bill Trott)