U.S. construction spending rises, private sector drives gains

WASHINGTON, Feb 1 (Reuters) - U.S. construction spending rose in December, with strong gains in home building and business investment outweighing a sharp drop in public works spending by state and local governments.

Construction spending increased 0.9 percent to an annual rate of $885 billion, the Commerce Department said on Friday. Analysts polled by Reuters had expected a 0.6 percent gain.

The data showed America's private sector picking up the slack from a shift toward government austerity.

Spending on private residential projects increased 2.2 percent in December, a reflection of the country's improving housing market that is expected to help economic growth this year.

Public sector construction spending fell 1.4 percent to an annual rate of $270 billion, the lowest level since November 2006.

State and local spending dropped by 1.7 percent, while outlays on federal government projects - a relatively small component of overall construction spending - rose 1.3 percent.

(Reporting by Jason Lange; Editing by Neil Stempleman)