Ground-breaking for new U.S. homes jumped in June, with starts for single-family homes rising at the fastest rate in 4-1/2 years, the government said on Friday in a report that suggested the battered housing sector was beginning to stabilize.

Housing starts unexpectedly climbed 3.6 percent to an annual rate of 582,000 units in June, from May's upwardly revised 562,000 units, Commerce Department data showed.

Single-family home starts jumped 14.4 percent, the biggest rise since December 2004. Single-family starts have now risen for two straight months for the first time since early 2007.

The housing starts rise is clear evidence of a rebound of demand for single-family homes, said Pierre Ellis, an economist at Decision Economics in New York.

June permits to start construction, an indicator of builder confidence, leaped 8.7 percent to 563,000 units, the highest since December.

Analysts polled by Reuters had expected starts and permits to be almost unchanged from May's 518,000 pace for permits and the previously reported 532,000 for starts.

U.S. stocks were little changed as the upbeat housing data was offset by worries about profits at large firms. However, the Dow Jones home construction index <.DJUSHB> was up 1.13 percent in midday trading, helped by gains in homebuilder DR Horton .

Treasury debt price fell as the improving economic outlook cooled appetite for safe-haven government debt.

RECORD FORECLOSURES

House prices, inflated by years of rock-bottom borrowing costs, began to crash in 2006, helping trigger the worst financial crisis since the Great Depression and the longest recession since World War II as soured credits had a contagious effect on banks, businesses and households.

In recent weeks, builder confidence has improved as first-time buyer tax credits and low interest rates and home prices are seen as improving buying conditions.

However, the glut of unsold homes continues to weigh heavily on housing markets. Adding to those pressures, U.S. home foreclosure activity set a record in the first half of the year despite government prevention programs.

Foreclosures are expected to keep up a record clip through the end of the year, online foreclosure tracker RealtyTrac said on Thursday.

The U.S. Federal Reserve has cut benchmark interbank lending rates to near zero and recently began buying long-term Treasury securities in a bid to pull down home lending rates and give a boost to battered housing markets.

Any stabilization in housing would follow a steep and devastating decline.

U.S. housing starts hit a record low 479,000 in April. Compared to the same period a year ago, June starts were down 46 percent.

Permits were down 52 percent from a year earlier, the steepest year-over-year tumble since George H.W. Bush was president.

(Additional reporting by Ellen Freilich and Rodrigo Campos in New York, Editing by Andrea Ricci)

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