WASHINGTON, May 7 (Reuters) - U.S. construction spending rebounded in March, boosted by a surge in single-family homebuilding, but higher mortgage rates could limit further gains.

The Commerce Department's Census Bureau said on Thursday that construction spending rose 0.6% after falling 0.2% in February. Economists polled by Reuters had forecast construction spending would rise 0.2% in March. 

Construction spending advanced 1.6% on a year-over-year basis in March. The Census Bureau has caught up on construction spending releases following delays caused by the federal government shutdown last year.

Spending on private construction projects increased 0.8% in March after slipping 0.2% in February. Investment in residential construction rose 1.7% after easing 0.1% in February. Spending on new single-family housing projects jumped 2.7%. 

The U.S.-Israel war with Iran is fanning inflation, keeping mortgage rates elevated. Builders also face higher prices from tariffs. Residential investment has declined for five straight quarters. Spending on multi-family housing units, which account for a small share of the housing market, gained 0.3% in March.

Spending on private nonresidential structures such as offices and factories fell 0.2% in March. Spending on nonresidential structures has contracted for nine consecutive quarters, the longest such stretch on record, despite a surge in the construction of data centers to support artificial intelligence.

Investment in public construction projects slipped 0.2% after falling 0.3% in February. State and local government construction spending dipped 0.1% in March while outlays on federal government projects dropped 2.6%.