WASHINGTON (AP):

Construction spending rose for the second time in three months in June as residential building increased, fresh evidence that the housing sector may be recovering.

The Commerce Department said Monday that construction spending increased by a seasonally adjusted annual rate of 0.3 per cent in June, defying analysts' estimates of a 0.5 percent drop. May construction spending was revised up slightly to a 0.8 per cent decline.

Still, June's $965.7 billion in spending was 10.2 percent below the year-ago level.

The data follow earlier reports that new and existing home sales each rose in June, and new home construction also increased. Buyers were taking advantage of bargain prices, low interest rates and a federal tax credit for first-time homeowners. Some homebuilders' stocks have risen recently, but falling home prices are expected to limit their earnings.

Public construction also helped drive the increase, jumping 1 percent to $321.7 billion for the biggest rise since March, the department said.

Federal government construction spending increased 1.9 per cent, the most since December 2008, after falling 0.3 per cent in May and plummeting 6.1 per cent in April. State and local construction rose 1 percent as spending on education and highway construction also grew.

"The government had its fingerprints all over the report," Jennifer Lee, an economist at BMO Capital Markets, wrote in a note to clients.

Residential construction rose

Private residential construction rose 0.5 per cent to a seasonally adjusted annual rate of $246.1 billion. The improvement follows a 3.1 per cent drop in May.

Construction spending was hammered by the housing and financial crises that plunged the economy into the longest recession since World War II.

Overall, the US economy shrank at a 1 per cent rate in the April-June quarter, the department said last week, a sharp improvement on the 6.4 per cent contraction in the first quarter and a 5.4 per cent decline in the fourth quarter of 2008. The gross domestic product, the broadest measure of the nation's output, has contracted for four consecutive quarters.

Sales jump

New US home sales jumped 11 per cent in June to a seasonally adjusted annual rate of 384,000, the strongest pace since November 2008. The last time sales rose that much was in December 2000.

Shares of big homebuilders, including Beazer Homes USA and Hovnanian Enterprises, have jumped in recent weeks. But with home prices falling, the big builders are not expected to make much money anytime soon.

The median sales price of $206,200, was 12 percent lower than a year earlier and down nearly 6 per cent from $219,000 in May.