KB Home , the fifth-largest homebuilder, saw a 40 percent jump in quarterly orders, suggesting a possible recovery in the housing market after a slump that has lasted half a decade.

Data released on Tuesday showed permits for future construction in the United States rose 3.2 percent in August. However, new construction of homes fell more than was expected.

It has been particularly tough for builders of new homes, with plenty of used houses and foreclosed homes in the market.

Last month, UBS said the slump in the new-home market had reached its nadir and further declines in sales and pricing over the second-half of the year were unlikely.

KB Home, which posted a narrower-than-expected third-quarter loss, said new orders increased to 1,838. Orders are a key indicator for builders who do not book revenue until they close on a house.

The market was expecting new orders to rise 15-20 percent.

On Monday, No. 3 homebuilder Lennar Corp also reported a 11 percent jump in new orders.

This is the first double-digit year-over-year growth in orders since the fourth quarter of 2009 and seems to be the bright spot in the earnings release, CRT Capital Group analyst Michael Kim said.

KB Home, which also competes with Toll Brothers , sold homes for an average of $227,400, up from $214,200, a year ago.

However, on Thursday, JP Morgan downgraded the company and said demand will be muted in 2012, hurt by weakness in job growth and falling consumer confidence.

KB Home cut costs by 26 percent to $363.1 million in the third quarter ended August 31, building on a 16 percent cut in the second quarter.

Net loss at KB Home, valued at about $538 million, widened to $9.6 million, or 13 cents a share.

Sales at the Los Angeles-based company, which was founded in 1957, fell 27 percent to $367.3 million for the quarter, while home deliveries fell to 1,603 homes from 2,320 homes.

Shares of rose more than 6 percent to $6.08 in early trading on the New York Stock Exchange, but pared most of the gains to trade up 1.6 percent at $5.81 around 11:45 ET.

The Dow Jones U.S. Home Construction Index <.DJUSHB> was up 1.5 percent.

(Reporting by Fareha Khan in Bangalore; Editing by Sayantani Ghosh)