(Corrects headline and first paragraph to make clear it was highest reading for month of May since 2005) June 30 (Reuters) - Contracts to purchase previously owned U.S. homes rose strongly in May to the highest level for that month since 2005. The National Association of Realtors (NAR) said on Wednesday its Pending Home Sales Index, based on contracts signed last month, rose 8.0% to 114.7. Economists polled by Reuters had forecast pending home sales would decline 0.8% percent. Pending home contracts are seen as a forward-looking indicator of the health of the housing market because they become sales one to two months later. Compared to one year ago, pending sales were up 13.1%. New and existing home sales have fallen sharply this year because of a shortage of houses on the market. A separate report on Tuesday showed the S&P/Case Shiller composite index of 20 metropolitan areas accelerated 14.9% on a year-on-year basis in April, the largest gain in more than 15 years. (Reporting by Evan Sully Editing by Paul Simao) Our Standards: The Thomson Reuters Trust Principles.