Activity in the construction sector grew robustly in June as an expected moderation in the housing market failed to materialise, a new report released yesterday indicates.

The Ulster Bank Construction Purchasing Managers Index (PMI) shows that the construction sector grew for the second month in succession, buoyed by a continued expansion in the housing market in the Republic.

The Construction PMI as a whole rose to 56.6 in June, up from 55.5 in May, indicating a continuing trend of growth. This expansion in the construction sector in the past two months followed a fall back in activity levels over the previous five months.

Ulster Bank chief economist Pat McArdle said June was a good month for activity everywhere and the Irish construction industry was no exception. Both housing and commercial construction picked up, although civil remains the laggard, he said.

"Earlier this year, there was widespread expectation that housing output of 77,000 units in 2004 would be the peak and that 2005 would see a modest fall in output," he said.

"Not alone is there no sign of a contraction, the PMI results for the first half of the year are strongly indicative of continued expansion."

The housing element of the PMI produced a reading of 57.5 last month, up from 56.4 in May.

The survey shows that growth in housing activity grew at its quickest rate since February, however the rate of increase has slowed since the third quarter of 2004 when this index peaked.

Mr McArdle said this was in line with the decline in house price inflation in recent months and was indicative of a soft landing rather than a crash. However, he warned the longer the expansion of housing activity, the greater the risk of an eventual sharp correction.

Overall firms indicated a slightly stronger degree of optimism than the last survey in May.

Activity in the commercial sector also picked up strongly in June rising to 57.5 on the index, up from 55.3 in May.

However, civil engineering showed a modest decline, falling to 48.4 in June from 51.9 in May, after rising slightly in the previous month.

The index indicates a marked upturn in job creation among construction companies with over a third of firms surveyed currently recruiting. Employment in the construction sector has been rising for twenty-two consecutive months, notes the survey.