Construction spending fell more steeply than expected in December to its lowest level since 2003, dragged down by a sharp drop in private residential and state and local government construction, a government report showed on Monday,

The Commerce Department said construction spending dropped 1.2 percent to $902.5 billion, falling for a second straight month. November's construction spending was revised down to show a 1.2 percent decline, instead of a 0.6 percent fall.

Economists surveyed by Reuters had forecast construction spending falling 0.5 percent in December. For the whole of 2009, construction spending fell by a record 12.4 percent.

In December, spending on private home building dropped 2.8 percent, the largest decline since May, after falling 1.4 percent the prior month. Residential investment is showing signs of renewed weakness and made a modest contribution to gross domestic product in the fourth quarter compared to the previous three-month period.

Private nonresidential spending, which has been buffeted by high vacancy rates and tighter access to credit, rose 0.2 percent in December after falling 0.9 percent the prior month.

Spending on state and local government construction projects fell 1.5 percent in December after falling by the same margin in November.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)