U.S. existing-home sales unexpectedly dropped in July as cancellations of pending contracts continued to depress buying activity.

The National Association of Realtors said sales fell 3.5% month over month to an annual rate of 4.67 million units. June's sales were upwardly revised at a 4.84 million-unit rate.

Economists polled by Reuters had expected sales to rise 3.8% to a 4.90 million-unit pace. Compared to July 2010, sales were 21% higher.