Home builders, aided by low interest rates, broke ground in February on the largest number of projects since the end of 1998, providing more momentum for the country's recovery from a recession.

Construction of new homes and apartments climbed to a seasonally adjusted annual rate of 1.77 million, a 2.8 percent increase over January's level, the Commerce Department reported Wednesday.

The bigger-than-expected increase pushed housing construction to its highest level since December 1998 and followed a strong 7.4 percent advance in January, even bigger than the government previously reported.

Low interest rates have helped the housing and construction market thrive even while the country suffered through a recession that began last March, economists say.

With Federal Reserve Chairman Alan Greenspan and his colleagues expressing more optimism Tuesday that the country is bouncing back nicely from the downturn, many economists believe short-term interest rates will move higher this year.

Still, Fed policy-makers on Tuesday opted to hold rates steady, allowing Americans to continue to enjoy some of the lowest rates seen in four decades.

Construction of single-family homes went up 7.4 percent to a rate of 1.46 million in February, the highest level since December 1978. But the number of apartments, condos and other multifamily housing fell by 12 percent to a rate of 264,000.

To lure prospective buyers, builders have offered incentives, such as including some options in a house at a discounts or at no charge, and offering to pay for buyers' closing costs, analysts say.

By region, housing construction rose a hefty 14 percent in the West to a rate of 432,000. In the South, construction grew by 0.9 percent to a rate of 828,000 and in the Midwest, starts rose by 0.8 percent to a rate of 363,000. But in the Northeast, housing construction fell by 9.3 percent to a rate of 146,000.

Economists say that consumers' spirits are being lifted with increasing evidence that the economy is rebounding from a recession. The manufacturing sector, which had been hardest hit by the slump, appears to be mounting a comeback. And, for the first time in seven months, businesses added jobs in February, helping to push the nation's unemployment rate down to 5.5 percent.

The Fed's 11 rate cuts last year helped to lifted the economy out of recession and helped to motivate consumers to spend through the slump. Consumer spending accounts for two-thirds of all economic activity in the United States.

Even though economists believe short-term rates will go higher this year, analysts believe longer-term mortgage rates will still be at a level that would make buying a home affordable for many prospective buyers.

The average interest rate on a 30-year fixed-rate mortgage rose to 7.08 percent last week. Some economists believe 30-year rates will hit a high of 7.5 percent by the end of this year.