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U.S. construction spending rises on residential recovery

WASHINGTON, Nov 1 (Reuters) - U.S. construction spending rose in September by the most in three months as stronger spending on homes made up for drops in business and government projects.

Construction spending climbed 0.6 percent to an annual rate of $851.6 billion, the Commerce Department said on Thursday. That was in line with analysts' forecasts in a Reuters poll.

August's outlays were revised to a less sharp 0.1 percent drop.

Home building is expected to add to economic growth this year for the first time since 2005, although the housing sector remains a shadow of what it was before a collapsed housing bubble helped trigger the 2007-09 recession.

Spending on private residential projects rose 2.8 percent, a reflection of this year's improving housing market.

Muting the gain in overall construction, however, private spending on nonresidential projects fell 0.1 percent. That could be another sign that businesses have lost some confidence when it comes to investing.

Public sector construction spending fell 0.8 percent, declining for a third straight month. A 0.3 percent drop in state and local spending fueled the overall decline, while outlays on federal government projects slipped 6.2 percent.

(Reporting by Jason Lange; Editing by Neil Stempleman)