WASHINGTON (AP) Construction spending rose to a record level in February as home building in the United States hit an all-time high despite a weakening in home sales, the government said April 3.

The Commerce Department said that overall construction spending rose to a seasonally adjusted annual rate of $1.185 trillion in February, a gain of 0.8 percent from the January level.

That was better than the 0.5 percent increase Wall Street had been expecting and demonstrated that construction should remain a source of strength for the economy in 2006 as private building of offices, factories and other projects takes up the slack from a cooling housing market.

In other economic news, a closely watched gauge of manufacturing activity came in weaker-than-expected in March although it remained at a level indicating that factories would continue expanding production in the months ahead.

The Institute for Supply Management said its manufacturing index dropped to 55.2 last month compared to a February reading of 56.7. Private economists had been expecting the index would rise to 57.7 in March. Readings above 50 indicate the manufacturing sector is expanding while a reading below 50 indicates manufacturing activity is shrinking.

Economists believe the housing sector, which has been booming for the past five years, will slow gradually this year under the impact of rising mortgage rates and slowing sales. New home sales posted a big decline in February while sales of existing homes have been down five of the past six months.

The increase pushed activity in the non-residential sector to an annual rate of $265.3 billion, the fastest pace since October 2001. Economists are looking for business spending on construction projects to help bolster the building sector this year as housing slows.

Government construction edged down 0.5 percent in February to an annual rate of $254.4 billion. The decline reflected weakness in federal spending, which dropped 1.8 percent to a rate of $19.3 billion, and a 0.4 percent decrease in state and local construction spending, which dipped to an annual rate of $235.1 billion.

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