Housing starts rose more than expected in April to touch their highest level since October 2008 likely on the back of a home buyer tax credit, but permits hit a six-month low, a government report showed on Tuesday.

The Commerce Department said housing starts rose 5.8 percent to a seasonally adjusted annual rate of 672,000 units. March's housing starts were revised to show a 5 percent increase, which was previously reported as a 1.6 percent gain.

Analysts polled by Reuters had expected housing starts to rise to 650,000 units. Compared to April last year, starts were up 40.9 percent, the largest increase since March 1994.

Groundbreaking for single-family homes rose 10.2 percent last month to an annual rate of 593,000 units after a 2.1 percent increase in March. Starts for the volatile multifamily segment tumbled 18.6 percent to a 79,000-unit annual pace, partially reversing the prior month's 24.4 percent surge.

A National Association of Home Builders survey on Monday showed home-builder sentiment rose to its highest level in more than 2-1/2 years, encouraged by the strengthening economic recovery, which builders hope will support home construction when the incentives end.

Investment in new home construction contracted in the first quarter after two straight quarters of growth. A flood of foreclosed properties is hampering the housing sector's recovery from a three year slump.

New building permits, which give a sense of future home construction, dropped 11.5 percent to a 606,000-unit pace last month, the lowest level since October 2009 the Commerce Department said.

(Reporting by Lucia Mutikani; Editing by Neil Stempleman)