WASHINGTON (Reuters) - Construction starts on new U.S. homes and apartments inched up in October, the government said Friday in a report suggesting falling mortgage rates are sparking a slow but steady rebound in the housing market.

Housing starts rose 0.1 percent in October to a seasonally adjusted annual rate of 1.532 million after a four-month slide in starts ended in September, the Commerce Department said.

Wall Street economists, citing a sharp increase in mortgage applications in the interest-rate sensitive housing sector, had estimated a stronger showing in housing starts for October, figuring that starts would show a rise in the month to 1.556 million.

Permits for new housing projects rose 1.3 percent last month to a seasonally adjusted annual 1.537 million, the highest level in six months and above analysts' estimates.

Analysts said the report suggested the housing market was on a solid foundation -- though nowhere near as hot as it was in 1999 and in early 2000, when starts and home sales skyrocketed, sparking some inflationary fears at the Federal Reserve.

``They show a nice stable, solid housing market,'' National Association of Home Builders forecasting director Stanley Duobinis said. Duobinis and other analysts predicted a slight cooling in housing starts in 2001.

``We're looking for some additional pullback, but leaving starts at a strong pace,'' economist Mark Vitner of First Union Corp. said.

Regionally, housing starts rose 7.6 percent in the South -- the largest U.S. housing market -- to a seasonally adjusted annual 719,000 in October. Starts also rose in the Midwest, posting a 6.77 percent gain, while housing starts in the West plunged 15.9 percent and fell 3.1 percent in the Northeast.

Despite the recent rebound, housing starts were still sharply below year-earlier levels in October. Starts were off 6.4 percent from a year before, when they reached a seasonally adjusted, annual 1.636 million. Home builders said they welcomed a little bit of a cooling in the U.S. housing market and in the overall economy since it will make it much easier for them to hire workers and locate building materials and could result in lower lumber prices.