By Lynn Adler

NEW YORK (Reuters) - U.S. home prices rose for the fifth straight month and posted the second quarterly increase, but the pace of appreciation in September slowed and was less than expected, according to Standard & Poor's/Case-Shiller indexes on Tuesday.

"We have seen broad improvement in home prices for most of the past six months," David M. Blitzer, chairman of the Index Committee at S&P, said in a statement. "However, the gains in the most recent month are more modest than during the seasonally strong summer months.

The S&P composite index of home prices in 20 metropolitan areas rose 0.3 percent in September from August after a 1.2 percent rise the prior month, below the 0.8 percent rise forecast in a Reuters poll.

The 20-city index had an annual decline of 9.4 percent.

The national index for the third quarter increased 3.1 percent from the prior quarter, the same as in the second quarter, resulting in an 8.9 percent annual drop. That was a significant improvement from the 14.7 percent annual downturn reported in the prior quarter and 19 percent slump in the first quarter.

The 10-city composite index rose 0.4 percent in September after a 1.3 percent August gain. The annual drop was 8.5 percent.

"We are going into the holiday season, and consumers are not losing value on their homes," said Craig Thomas, senior economist at PNC Financial Services in Pittsburgh. "Last Christmas, they were losing equity value on their homes at a 20 percent clip."

Both the 10-city and 20-city indexes emerged from double-digit annual declines for the first time in 21 months, S&P said.

The November extension of the $8,000 first-time homebuyer tax credit, and the addition of a $6,500 credit for move-up buyers, should support home sales and prices in coming months, economists said.

So should mortgage rates that hover near record lows. Average 30-year home loan rates are close to 4-7/8 percent, according to Freddie Mac <FRE.N>.

"This is another indication that the housing market is not taking away from the aggregate economy, and housing is what led us into this (recession) in the first place," Thomas said after the latest home price gains.

Average home prices have returned to levels last seen in autumn 2003 as they gain traction after a three-year rout.

Fewer cities had monthly price improvements in September than in August.

San Francisco and Washington, DC, reported the six straight month of positive returns. Chicago, Minneapolis, San Diego each had their fifth straight month of price increases. Nine metro areas in total had positive monthly returns in September.