U.S. home-builder sentiment rose in May to the highest level in more than 2-1/2 years, boosted by a homebuyer tax credit and strengthening economy, the National Association of Home Builders said on Monday.

The NAHB/Wells Fargo Housing Market index increased three points to 22, the highest since August 2007, the group said in a statement. It was the second straight month of gains in the index.

Economists polled by Reuters had expected the index to inch up to 20. A reading below 50 indicates more builders view sales conditions as poor than good. The index has not been above 50 since April 2006.

Builders were undoubtedly reacting to the heightened consumer interest they had just witnessed as the deadline for home buyer tax credits arrived at the end of April, said Bob Jones, NAHB chairman.

In addition to the tax credit, builders were also cheered by growing evidence that economy's recovery from the longest and deepest recession since the 1930s was gaining momentum.

All three subindexes of the Housing Market Index, including a measure of future homebuilding activity, saw decent gains this month.

This means builders are more comfortable that the market is truly beginning to recover, and that positive factors for buying a new home are taking the place of tax incentives to generate buyer demand, said NAHB chief economist David Crowe.

The current sales conditions gauge rose three points to 23, the highest since July 2007. The sales expectations measure for the next six months also gained three points to 28, the highest in six months. The traffic of prospective buyers index increased three points to 16, the highest since September.

Despite the improvement in builder sentiment, Crowe said tight access to credit, competition from short sales and foreclosures were major obstacles on the path to a healthier housing market.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)