New U.S. home sales fell in January but upward revisions to the prior months' data and a drop in the supply of properties on the market added to signs of a budding housing recovery.

In a further boost to the economy, a separate report on Friday showed U.S. consumer confidence hit its highest point in a year this month despite a strong rise in gasoline prices.

We are guardedly optimistic that we may be at an important turning point for both the economy and the housing sector, said Millan Mulraine, a senior macro Strategist at TD Securities in New York.

The Commerce Department said sales of new single-family homes slipped 0.9 percent last month to a seasonally adjusted 321,000-unit annual rate.

However data for October, November and December were revised to show a much higher sales pace than previously reported, giving the report a stronger tone and putting January's figure above economists' expectations

Sales last month rose briskly in the Northeast and South but fell sharply in the Midwest and the West.

A slew of recent data has led economists to lay aside concerns that the economy would slow abruptly at the start of this year. The U.S. unemployment rate hit a three-year low last month, manufacturing has picked up and the housing sector is stirring.

The brighter economic signs have helped lift the spirits of U.S. households.

The Thomson Reuters/University of Michigan's final index of consumer sentiment in February edged up to 75.3, the highest since February last year, from 75.0 in January.

The rise in confidence came even as Americans faced higher prices for gasoline. Prices have jumped 8.8 percent since the start of this year, according to the Energy Information Agency, topping an average of $3.65 a gallon in the week through Monday.

The Obama administration is weighing the circumstances that could warrant tapping the nation's strategic oil reserve, aware that supply disruptions from Iran could harm the global economy, Treasury Secretary Timothy Geithner said on Friday.

There is a case for the use of the reserve in some circumstances and we will continue to look at those and evaluate that carefully, Geithner said on CNBC television.

President Barack Obama, who faces re-election in November, is under pressure to give Americans relief from rising gasoline prices, with Republicans blaming the administration's energy policies for driving up oil prices to over $123 a barrel.

Economists expect the pain at the pump to be mitigated by falling natural gas prices and do not anticipate a repeat of 2011 when spiking gasoline prices almost tipped the economy back into recession.

GREEN SHOOTS EMERGING

Despite the drop in new homes sales last month the supply of homes on the market fell to 5.6 months - the lowest since January 2006 - from 5.7 months in December.

A 6-month supply is generally considered an ideal level and the decline last month suggested the supply-demand situation in the new homes market was coming into better balance. The inventory of new homes on the market was the lowest on record.

But new home sales face stiff competition from previously owned homes, which represent a much larger share of the market. Many are selling at a huge discount because of foreclosures.

The report shows traction for a housing industry anxious to ascend from the bottom, said Mitchell Hochberg, principal at Madden Real Estate Ventures in New York.

To climb back, the foreclosure overhang needs to clear, prospective home buyers must find it less difficult to qualify for a mortgage and consumer confidence must improve.

The median price for a new home rose 0.3 percent last month to $217,100, the highest since October. It was the second straight month of gains. Compared to January last year, however, the median price was down 9.6 percent.

Economists are optimistic the downward pressure on home prices is set to ease, encouraged by recent declines in the supply of unsold previously owned homes, which fell to a near 6-year low of 6.1 months in January.

Data this week showed home resales rose to a 1-1/2-year high last month, and confidence among homebuilders in February neared a five-year high. Still, both sales and home construction remain far below their 2005 levels.

(Reporting by Lucia Mutikani; Editing by James Dalgleish)

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