Sept 12 (Reuters) - U.S. household wealth rose last

quarter to $163.8 trillion, a fresh record, driven by gains in

real estate values as well as a rise in the stock market, data

from the Federal Reserve showed on Thursday.

The increase in the net worth of households and non-profits,

which stood at $161 trillion at the end of the first quarter,

was driven largely by a $1.8 trillion increase in the value of

real estate holdings and a $700 billion gain in the value of

equity holdings.

At the same time, household debt rose at an annualized rate

of 3.2%, the fastest pace since the third quarter of 2022. Cash

on hand dropped modestly, the report also showed, with bank

balances plus money market funds and foreign currency holdings

totaling $18.44 trillion at the end of June, down from a record

$18.51 trillion at the end of March

The snapshot of households' financial wellbeing comes less

than a week before the Federal Reserve is widely expected to

reduce borrowing costs for the first time since the pandemic

recession.

Policymakers are making the move as inflation has cooled

and in hopes of preventing a slowing labor market from

worsening, dragging the broad economy down with it.

The stock market ended the second quarter at near-record

levels, with the benchmark S&P 500 index delivering a total

return of 4.3% including reinvested dividends.

The report also showed business debt rose at an

annualized 3.8% pace, a shade less than the 4% pace of the first

quarter.