Construction of new homes in the US climbed to a 17-year high last month, according to figures released yesterday, confounding analysts' expectations and appearing to confirm signs of a fledgling economic recovery.

New housing starts climbed to 1.87 million homes in July, up 1.5 per cent from the previous month, despite several weeks of rapidly rising mortgage rates.

Economists had been expecting the figure to decline slightly. "This is a real surprise," said Mr David Wyss, chief economist at Standard & Poor's.

He added that economists were still waiting for good news in other sectors of the economy, especially capital spending by businesses and the labour market.

"Consumer spending is doing well, but we'd like to see some other parts of the economy pick up," he said.

Yesterday's housing figures, released by the US Census Bureau, also showed that starts - groundbreakings for new multi and single-family homes - were up 12.4 per cent from July 2002 levels.

Single-family housing starts in July rose 1.9 per cent from the prior month to 1.52 million, the highest since 1978 and the third-highest figure on record.

According to the Freddie Mac index of 30-year mortgages, fixed rates have risen from 5.21 per cent in mid-June to 6.24 per cent last week. But rates are still in line with where they stood a year ago.

The recent rise in rates may have had unexpected consequences.

"Our builders' survey is telling us that the move up in rates has stimulated home buying rather than deterred it," said Mr David Seiders, chief economist with the National Association of Home Builders in Washington.

"It still seems to be a fundamentally good market and mortgage rates are still good."

In a sign that the pace of construction is likely to ebb eventually in the face of higher interest rates, building permits in July for private homes fell 2.4 per cent. But the pipeline of homes about to be built remained strong, analysts say.

In a separate report also released yesterday, US consumer sentiment dipped in August, according to a monthly survey by the University of Michigan.

Its consumer sentiment index fell to 90.2, according to a preliminary survey, down from 90.9 from last month. The Michigan report was to be released last Friday, but it was moved due to the power cuts in the US.

Analysts said that despite a surge since the end of the war in Iraq, consumer sentiment levels have plateaued in recent months, a situation that could become worrying should there be no steady increase soon.