U.S. housing starts (search) rose 10.9 percent last month, beating expectations and marking the biggest jump in more than seven years, as groundbreaking activity increased across the nation, a Commerce Department (search) report showed on Wednesday.

Housing starts rose to a seasonally adjusted annual rate of 2.004 million units in December from an upwardly revised 1.807 million pace a month earlier, the government said. That was the largest one-month gain since an 11.2 percent increase in September 1997.

Wall Street economists had expected housing starts to increase to a 1.90 million unit pace from the 1.771 million rate initially reported for November.

For the full year, housing starts rose 5.7 percent to 1.953 million. That is the slowest rate of increase since 2.2 percent in 2001.

Low mortgage lending rates, which averaged 5.8 percent in 2004 according to Freddie Mac economists, have been supporting the housing sector despite short-term interest rate increases by the U.S. Federal Reserve (search).

Permits for future groundbreaking, an indicator of builder confidence, fell 0.3 percent to a 2.021 million unit pace. Analysts had expected permits to decrease 2.1 percent to a 1.99 million permit-issuing pace. For 2004 as a whole, permits were up 6.8 percent to 2.018 million units.

The Commerce Department said housing starts increased 18.8 percent in the Midwest, 10.6 percent in the South, 7.9 percent in the West and 5.7 percent in the Northeast in December.