Spending on U.S. construction projects unexpectedly rose in June, led by an improvement in residential real estate and gains in government projects, Bloomberg reported after the release of government data.

The 0.3 percent increase to $965.7 billion followed a revised 0.8 percent drop the prior month, the U.S. Commerce Department said. Private residential projects rose for the second time in three months, and federal spending increased by the most this year.

Spending on infrastructure projects is likely to keep rising in coming months as state and local governments use funds from the $787 billion fiscal stimulus package. In addition, lower home prices and mortgage rates are beginning to boost sales, spurring residential construction and bringing an end to the worst housing slump in seven decades, Bloomberg said.

Private residential construction spending increased 0.5 percent after falling 3.1 percent the prior month, according to the Commerce Department report.

Total non-residential construction, including public projects, rose 0.1 percent, led by a 0.9 percent gain in government spending.

Total construction spending was forecast to drop 0.5 percent after an originally reported 0.9 percent decrease in May, according to the median estimate of 50 economists in a Bloomberg News survey.

Total public construction climbed 1 percent as federal expenditures rose 1.9 percent and state and local government outlays increased 1 percent to a record $295.8 billion.

The increase in public outlays was widespread, with gains in the construction of schools, office buildings, parks, transportation systems and water facilities.

Residential construction is showing signs of bottoming. Housing starts unexpectedly rose in June as construction of single-family dwellings jumped by the most since 2004, Commerce Department figures showed. The 3.6 percent increase brought starts to the highest level in seven months.