WASHINGTON - New U.S. housing starts and permits rose in August to their highest level in nine months and the number of people filing of unemployment benefits fell last week, evidence a solid economic recovery was underway.

The Commerce Department said on Thursday housing starts rose 1.5 percent from July to a seasonally adjusted annual rate of 598,000 units.

In another report, the Labor Department said the number of workers filing new claims for jobless benefits fell by 12,000 last week to 545,000, the lowest level since early July.

The drop in initial claims suggests that the severe pressures on the labor market continue to subside, said Alan Gayle, senior investment strategist at Ridgeworth Investments in Richmond, Virginia. Clearly the strains remain, but we are seeing some gradual improvement from the peaks we were at some months ago.

The U.S. dollar extended gains against the yen on the strong economic data, but stock index futures added to losses and U.S. government debt prices turned lower.

Groundbreaking for single-family homes, fell 3 percent in August to an annual rate of 479,000 units, after five straight monthly increases. Starts for the volatile multifamily segment jumped 25.3 percent to a 119,000 annual pace, reversing the previous month's slump.

Compared to August last year, housing starts declined 29.6 percent. The housing market, the main trigger of the worst U.S. recession in seven decades, is showing steady signs of healing and analysts expect activity in the sector to contribute to gross domestic product growth this quarter.

A survey on Wednesday showed confidence among U.S. home builders reached its highest level in 16 months in September, which bodes well for future home construction.

Data ranging from retail sales to industrial production have pointed to strong third-quarter economic growth, but questions over the sustainability of the recovery continue to linger amid stubbornly high unemployment.

The Labor Department report showed the number of people still on jobless aid after an initial week of benefits increased by 129,000 to 6.230 million in the week ending Sept 5, the latest for which data is available. It was the largest one week gain since late June.

New building permits, which give a sense of future home construction, climbed 2.7 percent to 579,000 units in August. That compared to analysts' forecasts for 580,000 units. Compared to the same period a year-ago, building permits fell 32.4 percent.

The inventory of total houses under construction fell to a record low 595,000 units in August, the department said, while the total number of permits authorized but not yet started also hit an all-time trough of 99,000 units.

(Reporting by Lucia Mutikani and Alister Bull; Editing by Neil Stempleman)