Sales of new U.S. homes rose for the second month in a row in October, the government said on Thursday in a report suggesting the housing market continues to be a bright spot in the ailing U.S. economy.

Sales of new, single-family homes rose 0.2 percent to an annual rate of 880,000 units last month from 878,000 in September.

The sales figure was much stronger than Wall Street economists had estimated. Analysts polled by Reuters on average figured new home sales slipped to an annual rate of 853,000 units in October.

Sales were led by a huge increase in purchases of new homes in the Northeast. New home sales rose 15.8 percent in the Northeast while sales increased 3.3 percent in the West and gained 1.4 percent in the South, the nation's biggest housing market.

Sales of new homes sunk in the Midwest last month, however, sliding 11.7 percent.

Despite the gain in October, new home sales across the United States were down 4.6 percent last month compared with October 2000. The supply of available new, single-family homes in October, meanwhile, remained at 4.3 months' worth for the third month in a row.

The U.S. housing market has stayed strong despite a massive slowdown in the overall economy as a significant drop in mortgage rates have enticed buyers. According to housing finance giant Freddie Mac, 30-year mortgage rates averaged 6.62 percent in October, down from 6.82 percent in September.

An increase in home values has also been seen as providing a boost for consumer spending, which accounts for two-thirds of U.S. economic activity. As consumers see a rise in the value of their homes, the most tangible asset for most Americans, they feel wealthier and more confident about their financial status, economists say.

The median price of new, single-family homes rose for the first time in four months in October, reaching $168,400, up from $165,300 in September.

Other data released this week showed a rebound in sales of existing homes last month after a huge drop following the Sept. 11 attacks. The National Association of Realtors said on Tuesday sales of U.S. existing homes, which account for the biggest chunk of the housing market, rose 5.5 percent in October after an 11.6 percent drop in the prior month.

An official at NAR said home sales may ease in coming months because sales last month were boosted by contracts that would have otherwise closed in September had buyers not held off after the attacks. And while mortgages rates are still low, they have risen slightly in recent weeks, the official said.