Aug. 28 (Bloomberg) -- Argentine construction activity rose more than expected in July as the country's economy heads for a fifth straight year of expansion.

Construction activity grew 6.1 percent from a year earlier while it fell a seasonally adjusted 1.0 percent from June, the National Statistics Institute reported today in Buenos Aires. The annual increase is higher than the 4.2 percent median estimate in a Bloomberg Survey of four economists.

A construction boom in Argentina, South America's second-largest economy, has helped fuel more than four years of economic growth of 8.5 percent annually or better. Higher costs for construction goods slowed building activity at the end of last year, said economists such as Jose Luis Espert, who runs the Espert & Asociados economic research company in Buenos Aires.

``Construction used to be one of the engines of the economic growth as people with U.S. dollar savings invested in construction,'' said Espert in a phone interview. ``Still, construction prices rose too much last year, prompting a drop of the activity.''

Construction activity in December fell 2.5 percent from a year earlier, compared with growth of 22 percent in December 2005. Espert said he forecasts construction growth to slow this year to 5 percent from 15 percent in 2006.

Last week, Argentine President Nestor Kirchner reached an agreement with the country's construction companies to limit price increases as part of a government effort to contain inflation.

The Argentine Chamber of Construction, a chamber of commerce for the country's biggest builders, agreed to limit price increases to no more than 6 percent after prices of construction goods rose 15.6 percent in July from a year earlier, almost twice the country's official annual inflation rate.

To contact the reporter on this story: Eliana Raszewski in Buenos Aires eraszewski@bloomberg.net

Last Updated: August 28, 2007 17:03 EDT