The pace of U.S. housing construction rose more than expected in May after three months of declines as groundbreaking on both single-family and multifamily units jumped, a government report showed on Tuesday.

The Commerce Department said May housing starts rose 5.0 percent in May to a 1.957 million unit annual pace compared to an upwardly revised 1.863 million unit rate in April.

Economists had expected May housing starts to stabilize at a 1.85 million unit pace in May, edging above April's initially reported 1.849 million unit rate.

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However, permits for future groundbreaking, an indicator of builder confidence, fell 2.1 percent to a 1.932 million unit pace, the lowest rate since November 2003. Economists polled by Reuters had expected May permits to fall to an annual pace of 1.95 million units after an unrevised 1.973 million rate in April.

Construction starts for single-family homes rose 2.1 percent to 1.586 million unit pace, while groundbreaking on multifamily buildings rose 25.4 percent.

On Monday, a housing industry group said U.S. home-builder sentiment sank to its lowest in more than 11 years in June as rising interest rates made houses less affordable and curbed speculative buying. The National Association of Home Builders/Wells Fargo Housing Market Index of sentiment fell 4 points to 42 in June from an upwardly revised 46 in May.

David Seiders, the NAHB's chief economist, said the index, at its lowest since April 1995, suggested that new home sales would drop by 13 percent in 2006 from a record last year.

Housing starts in May rose 15.8 percent in the West, 8.5 percent in the South and 1.7 percent in the Northeast. They fell 15.8 percent in the Midwest.

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