April 29 (Reuters) - U.S. mortgage rates rose last week for the first time in a month, with the average 30-year fixed-rate mortgage up 2 basis points to 6.37% for the week ended April 24, the Mortgage Bankers Association said on Wednesday.

Mortgage applications dropped 1.6% from a week earlier, driven by a 4% decline in refinancing, the MBA said.

Still, purchase applications increased 2%, a sign that potential homebuyers are "moving forward this spring and taking advantage of the more favorable inventory conditions in most parts of the country," MBA Chief Economist Mike Fratantoni said.

Springtime is traditionally peak homebuying season. Though borrowing costs are down from their 6.57% peak immediately after the February start of the U.S.-Israeli war with Iran, they are still more than a quarter of a percentage point higher than they had been before the hostilities drove up the price of oil and yields on the Treasury bonds lenders use to set home loan rates.

Lenders are cautious.        "We're just seeing a modest increase (in mortgage demand)  from March to April, where we normally see a broader and larger increase historically," Matt Vernon, head of consumer lending at Bank of America, said. "And I think that's just this timing speed bump that we're all trying to get our heads around."

The Federal Reserve is expected to leave its target for short-term borrowing costs in the 3.50% to 3.75% range at its meeting Wednesday, and financial markets are betting the policy rate will stay there until deep into next year.