China's April new home prices fall at slowest monthly pace in a year

* Monthly price decline slows, led by gains in major cities

* Tier-one cities see price rise, smaller cities and developers struggle

* Government incentives, state-backed purchases aim to stabilise market (Adds comments, details, background throughout; property investment data in paragraph 10)

By Liangping Gao, Yukun Zhang and Ryan Woo

BEIJING, May 18 (Reuters) - China's new home prices fell at the slowest monthly pace in a year, data showed on Monday, offering early signs of stabilisation as local governments deploy support measures to boost sales and shore up sentiment.

New home prices dipped 0.1% in April from the previous month, narrowing from a 0.2% drop in March and marking the slowest decline since April last year, according to Reuters calculations based on National Bureau of Statistics data.

On an annual basis, prices fell 3.5%, compared with a 3.4% decline in March, marking the steepest drop in 11 months.

"The property market has not yet bottomed out," said Morningstar analyst Jeff Zhang. "Sector indicators are likely to remain weak in the coming months, although sales and prices in higher-tier cities could stabilise."

Zhang said oversupply meant the market could take another one to two years to bottom out and recover overall.

The slower monthly decline, driven mainly by price gains in major cities, bolsters hopes among investors and homeowners for a rebound in the key property sector that has been mired in a years-long slump. The prolonged downturn in home prices has weighed on domestic consumption and eroded household wealth.

However, the recovery remains uneven. New home prices in tier-one cities, including Shenzhen and Shanghai, rose 0.1% month-on-month, while prices in tier-two and tier-three cities fell 0.1% and 0.3%, respectively.

The number of cities reporting monthly price declines fell to 49 from 54 in March.

Investors are awaiting signs of a bottoming out in a market still grappling with a backlog of unsold homes and unfinished projects. Recent improvement has been marginal and visible only in some tier-one cities. In lower-tier cities, demand remains poor, and property developers' sales continue to struggle.

Property investment fell 13.7% in the first four months compared with the same period last year, steeper than an 11.2% drop in the first quarter, separate data showed on Monday.

Divergence among cities is likely to persist, said Zhang Dawei, an analyst at Centaline Property, with "property values in core cities becoming increasingly evident while most third- and fourth-tier cities continue to seek a way forward through destocking and structural adjustment."

"Homebuyers should take a rational view of market divergence and choose the timing and location of purchases based on their own needs and a city's development potential," Zhang added.

In the existing home market, prices in tier-one cities rose month-on-month but were still down from a year earlier, while smaller cities recorded declines on both a monthly and annual basis.

Following the central government's renewed push for limiting new projects and reducing housing inventory at the annual parliamentary meeting in early March, a number of Chinese cities rolled out incentives, such as subsidies, for home buyers.

Some cities also stepped up calls for state-backed entities to buy unsold housing units and offer them as affordable housing or through other programmes. Whether such measures can lead to a sustained recovery remains unclear, analysts say.

In a meeting in late April, China's top leaders vowed to effectively prevent and mitigate risks in key areas and to stabilise the real estate market. (Reporting by Yukun Zhang, Liangping Gao and Ryan Woo; Editing by Jacqueline Wong)