Housing starts rebounded more strongly than expected to their highest level in six months in January, while permits fell slightly less than forecast, a government report showed on Wednesday.

The Commerce Department said housing starts increased 2.8 percent to a seasonally adjusted annual rate of 591,000 units, reversing the prior month's weather-induced drop.

Analysts polled by Reuters had expected housing starts to rise to 580,000 units. December's housing starts were revised upwards to 575,000 units from the previously reported 557,000 units. Compared to January last year, starts surged 21.1 percent, the largest increase since April 2004.

Groundbreaking for single-family homes rose 1.5 percent last month to an annual rate of 484,000 units after declining 3 percent in December. Starts for the volatile multifamily segment increased 9.2 percent to a 107,000 unit annual pace after rising 12.6 percent in December.

Housing, which is at the core of the most painful economic downturn since the Great Depression, is crawling out of a three-year slump, supported by government programs. New home construction contributed to economic growth in the third quarter of 2009 for the first time since 2005.

But activity slowed sharply in the fourth quarter and while homebuilder sentiment edged up this month, it remains at levels consistent with poor conditions.

New building permits, which give a sense of future home construction, fell 4.9 percent to 621,000 units last month after rising to a 14-month high of 653,000 units in December, the Commerce Department said. That compared to analysts' forecasts for 620,000 units.

The inventory of total houses under construction fell 2.3 percent to a record low 503,000 units last month, while the total number of units authorized but not yet started eased 0.9 percent to 94,300 units.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

Fall