U.S. construction spending rises to 7-1/2-year high

WASHINGTON (Reuters) - U.S. construction spending rose in September to the highest level in 7-1/2 years as both private and public outlays increased, suggesting a modest upward revision to the third-quarter GDP growth estimate.

Construction spending advanced 0.6 percent to $1.09 trillion, the highest level since March 2008, after an unrevised 0.7 percent increase in August, the Commerce Department said on Monday.

Construction spending has increased every month this year, and the latest gain suggested the economy remained on firmer ground despite some slowing in consumer spending and persistent weakness in manufacturing.

Economists polled by Reuters had forecast construction spending rising 0.5 percent in September. Construction outlays were up 14.1 percent compared to September of last year.

September's increase is slightly above the gain the government had estimated in its advance third-quarter gross domestic product estimate published last week.

The government reported the economy grew at a 1.5 percent annual pace in the third quarter, hurt by business efforts to reduce an inventory glut and continued spending cuts by energy firms. A strong dollar also hurt the economy.

Data last week suggested consumer spending lost momentum at the end of the third quarter, with consumption in September posting its smallest increase in eight months. A report on Monday was expected to show a further slowdown in factory

activity in October.

In September, construction spending was boosted by a 0.6 percent rise in private construction spending, which hit its highest level since January 2008.

Spending on private residential construction jumped 1.9 percent in September, also reaching the highest level since January 2008, reflecting gains in home building and renovations.

Investment on private non-residential construction projects, however, fell 0.7 percent.

Public construction outlays gained 0.7 percent. Spending on state and local government projects, which is the largest portion of the public sector segment, increased 0.9 percent.

Federal government outlays declined 1.0 percent.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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