WASHINGTON (Reuters) - U.S. construction spending increased more than expected in October, boosted by single-family homebuilding.

The Commerce Department's Census Bureau said on Monday construction spending rose 0.4% after an unrevised 0.1% gain in September. Economists polled by Reuters had forecast construction spending climbing 0.2%. Construction spending advanced 5.0% on a year-on-year basis in October.

Spending on private construction projects increased 0.7%. Investment in residential construction shot up 1.5%, with outlays on new single-family projects rising 0.8%. The increase was despite mortgage rates reversing all of the decline that had pushed them to a more than 1-1/2-year low of 6.08% at the end of September after the Federal Reserve began cutting interest rates.

The average rate on a 30-year fixed-rate mortgage jumped to 6.72% by the end of October, tracking a rise in 10-year U.S. Treasury yields, which have increased on strong domestic data that have suggested a slower path of rate cuts from the U.S. central bank.

New homes inventory for sale is at levels last seen in early 2008, which could limit gains in single-family housing construction. Outlays on multi-family housing units rose 0.2%. Spending on home renovations also increased.

Residential spending, which includes homebuilding, has been a drag on the economy for two straight quarters.

Investment in private non-residential structures like offices and factories fell 0.3%, pulled down by declines in commercial, healthcare, educational as well as amusement and recreation facilities.

Spending on public construction projects dropped 0.5% in October. State and local government spending decreased 0.6%, more than offsetting a 0.3% gain in outlays on federal government projects.