U.S. construction spending posts first decline in eight months

WASHINGTON, Jan 2 (Reuters) - U.S. construction spending fell in November for the first time in eight months, as an extended bout of weakness in the business sector outweighed modest growth in outlays on residential projects.

Construction spending dropped 0.3 percent to an annual rate of $866 billion, the Commerce Department said on Wednesday. Analysts polled by Reuters had expected a 0.6 percent gain.

Businesses have shown signs they are holding back on investments because of worries over federal austerity plans, and the construction data could be another sign of flagging confidence.

Private spending on nonresidential projects slipped by 0.7 percent, the fourth decline in six months.

Spending on private residential projects, however, rose 0.4 percent, a reflection of the country's improving housing market.

Home building likely added to economic growth in 2012 for the first time since 2005, although the housing sector remains a shadow of what it was before the 2007-09 recession.

Public sector construction spending fell 0.4 percent. State and local spending edged 0.1 percent higher, while outlays on federal government projects - a relatively small component of overall construction spending - declined 5.5 percent.

(Reporting by Jason Lange; Editing by Neil Stempleman)