WASHINGTON (Reuters) - Groundbreaking for U.S. homes rebounded in April and factory activity gained momentum, suggesting a moderate pickup in economic growth early in the second quarter.
The reports on Wednesday were the latest in a series to dampen fears that the recovery in the world's largest economy was stagnating after tepid job growth last month.
The Commerce Department said housing starts increased 2.6 percent to a seasonally adjusted annual rate of 717,000 units.
In a separate report, the Federal Reserve said production at the nation's mines, factories and utilities rose 1.1 percent - the largest gain since December 2010.
"The economy is grinding its way forward, but it's not firing on all cylinders. There are plenty of reasons to be nervous; Europe is top on that list," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.
The reports came on the heels of data on Tuesday showing a strong rebound in factory activity in New York state and confidence among home builders hit a five-year high this month. Retail sales in April also showed underlying strength.
The housing and industrial production data had little impact on U.S. financial markets as investors kept a wary eye on Europe, where the European Central Bank was said to have stopped providing liquidity to some Greek banks.
U.S. stocks fell in choppy trade, while prices for Treasury debt rose marginally. The dollar was slightly firmer against a basket of currencies.
Analysts expect the economy to grow at around a 2.5 percent annual pace in the second quarter, although the government's 2.2 percent initial estimate for first-quarter growth is expected to be lowered to below 2 percent later this month.
Minutes of the Federal Reserve's April 24-25 meeting said several policymakers felt additional monetary easing by the U.S. central bank could be necessary if the recovery lost momentum or downside risks increased.
The jump in industrial production last month was driven by a 4.5 percent increase in utility output, a 1.6 percent gain in mining and a 0.6 percent rise in factory production.
Manufacturing has been one of the main pillars of the recovery from the 2007-09 recession and continues to show resilience even with Europe, a top destination for U.S. exports, teetering on the edge of recession.
The signs of life in the U.S. housing market were bolstered by upward revisions to housing starts and permits for March. Still, the number of new projects builders broke ground on in April was more than two-thirds below the peak reached in January 2006.
POSITIVE MOMENTUM
Housing starts last month rose across the board. Groundbreaking for single-family homes, the largest portion of the market, increased 2.3 percent. Starts for multi-family buildings advanced 3.2 percent.
Residential construction in the first quarter grew at the fastest pace in nearly two years and is expected to contribute to economic growth this year for the first time since 2005.
"The housing sector, which was once the Achilles heel of the economy, is continuing to build on the positive momentum of the past few months and is finally contributing positively to economic activity on a consistent basis," said Millan Mulraine, senior macro strategist at TD Securities in New York.
Other data also pointed to recovery in the housing market.
The delinquency rate on U.S. home mortgages fell in the first quarter to the lowest level since 2008, though the share of homes in the foreclosure process inched higher, the Mortgage Bankers Association said.
An oversupply of unsold homes is the main challenge for the market, but there is anecdotal evidence that supply is gradually being whittled down. That and rising demand for rentals, which is keeping builders busy, should help housing find its footing.
A rise in sentiment among home builders to a five-year high in May, according to a survey released on Tuesday, suggests the 7 percent drop in permits to a 715,000-unit pace last month would be temporary. Two strong back-to-back monthly gains had taken permits in March to their highest level since September 2008.
Permits to build single-family homes rose 1.9 percent in April to a 475,000-unit pace, but permits for multi-family homes fell 20.8 percent to a 240,000-unit rate.
(Additional reporting by Jason Lange; Editing by Chizu Nomiyama)