Aug. 11 (Bloomberg) -- Canadian housing starts rose a more- than-expected 8.5 percent in July to the second-fastest pace since 1990 as the lowest mortgage rates in half a century spurred demand.

The rate of construction would yield 223,500 homes in a year, up from a revised 205,900-unit pace in June, Canada Mortgage & Housing Corp. said in Ottawa. July's rate was the fastest in 13 years, except for a 246,100-unit pace in February.

``Low mortgage rates and job creation continue to buoy consumer confidence and are the main catalysts driving new home construction higher,'' said Bob Dugan, an economist at the government housing agency. The average rate on a five-year fixed mortgage was 6.2 percent last month, after falling to 5.8 percent in June, the lowest since 1951. Canada has added 70,900 jobs this year through July.

The report suggests consumer spending, which makes up 56 percent of Canada's C$1 trillion ($720 million) economy, is holding up even as job growth has slowed to a fifth of what it was at this point last year. Analysts are divided on whether home purchases can keep leading the flagging economy as the pent-up demand for residences that built up in the 1990s is exhausted.

The Bank of Canada, which lowered its trend-setting interest rates last month, is trying to fuel consumer and business spending to drive economic expansion as the U.S. economy struggles and this year's 14 percent rise in the Canadian dollar cuts exports.

The Canadian dollar rose after the report to 72.43 U.S. cents at 4:17 p.m. in Toronto from 71.87 cents on Friday.

Multiples Lead

Apartment and condominium construction led July's gain, rising 9.5 percent to an annual rate of 90,800 units. Single- family housing starts in cities advanced 4.7 percent to a 103,100- unit pace.

Economists surveyed by Bloomberg News expected a 209,000- home pace, the median of 14 estimates. The figures are seasonally adjusted.

Housing starts were 3.9 percent higher in July from the beginning of the year compared with the same period a year ago.

Urban single starts have fallen 3.4 percent in that time, and sales of existing residences have sagged 4.3 percent, signs ``the housing market has flattened out'' said John Anania, assistant chief economist at Royal Bank of Canada.

Last Updated: August 11, 2003 16:23 EDT