Mortgage activity as measured by the Mortgage Bankers Association's Market Composite Index increased 15.5% on a seasonally adjusted basis last week a week earlier, which included the July 4th holiday, the group said Wednesday.

The rise was due entirely to a 23.1% jump in the Refinance Index; the seasonally adjusted Purchase Index decreased 0.1% from one week earlier. Unadjusted, the Purchase Index rose 25.1% compared with the holiday week and was 8.3% higher than the same week one year ago.

The driver was rates.

"Ongoing turmoil in the financial markets primarily due to the sovereign debt crisis in Europe has brought mortgage rates back to their lowest levels of the year," said Michael Fratantoni, MBA's vp/research and economics. "Refinance applications have surged in response and the refinance index is at its second highest level of the year. One factor that may be contributing to this increase is that borrowers potentially impacted by impending decreases in the conforming loan limit may be opting to lock in fixed-rate financing now."

The four-week moving average for the seasonally adjusted Market Index was up 0.3%, down 0.3% for the seasonally adjusted Purchase Index and up 0.5% for the Refinance Index.

The refinance share of mortgage activity increased to 70.1% from 65.6%, reaching its highest level since January 21, 2011. The adjustable-rate mortgage share of activity increased to 5.8% from 5.5%.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.54% from 4.55%, with points decreasing to 0.98 from 0.99. The rate for 15-year fixed-rate mortgages decreased to 3.66% from 3.68%, with points decreasing to 0.97 from 1.10.