New U.S. housing starts and permits unexpectedly rebounded in February, according to data on Tuesday that provided a rare dose of good news for the recession-hit economy and fractured housing market.

The Commerce Department said housing starts jumped 22.2 percent to a seasonally adjusted annual rate of 583,000 units from 477,000 units in January. That was the biggest percentage rise since January 1990 and also marked the first increase since last April.

That is an encouraging sign for the U.S. economy. It is good signal of what is to come. With the rally in equities we hopefully have seen a bottom for the economy here, said Matt Esteve, foreign exchange trader at Tempus Consulting in Washington.

U.S. stocks have been on the rise over the last several days and the major indexes opened flat on Tuesday. U.S. government bond prices trimmed gains after the data and the U.S. dollar fell against the euro as risk aversion eased.

The data came as the Federal Reserve's policy-setting committee was due to start a scheduled two-day meeting on Tuesday, It is expected to leave the target for its benchmark overnight funds rates unchanged at zero-0.25 percent.

But the statement at the end of the meeting on Wednesday will be scrutinized for clues on the central bank's readiness to start buying Treasuries to boost its efforts to jump-start an economy in recession since December 2007.

New building permits, which give a sense of future home construction, rose 3.0 percent to 547,000 units, from 531,000 units in January. That also marked the first advance in permits since April last year.

Compared to the same period in 2008, housing starts were down 47.3 percent in February and permits declined 44.2 percent. Completions rose 2.3 percent to a rate of 785,000 from January's 767,000.


The housing market is at the center of the financial and economic meltdown and bringing some measure of stability to the sector is crucial to rescuing the economy.

Collapsing house and stock market values are a drag on consumer spending, which accounts for over a third of economic activity.

A separate report from the Labor Department showed U.S. producer prices rose by less than expected in February after the pace of energy price increases slowed, but core producer prices came in a bit above forecast.

The seasonally adjusted producer price index increased by 0.1 percent last month versus a 0.8 percent gain in January.

These two reports will be a relief for everybody and bring some optimism. But the Fed will remain cautious because one month doesn't make a trend, said Kurt Karl, chief U.S. economist at Swiss Re in New York.

Compared with the same period last year, producer prices were 1.3 percent lower, the largest fall since a 1.8 percent decline in September 2002.

Core producer prices, which exclude energy and food costs, rose 0.2 percent in February compared with a forecast for a 0.1 percent increase. This followed a 0.4 percent rise in January. Core producer prices were 4.0 percent higher measured on a year-over-year basis.

A moderating in price increases for energy goods limited the rise in the headline PPI index in February, the data showed. Energy goods rose by 1.3 percent in February after climbing 3.7 percent the month before.

Capital equipment was up only 0.1 percent after a 0.5 percent increase in January, while consumer foods prices fell 1.6 percent.

(Additional reporting by Alister Bull in Washington and Richard Leong and Nick Olivari in New York, Editing by Andrea Ricci)