WRAPUP 2-U.S. home starts falsely pointed up, still weak

(Recasts, rewrites throughout, adds Philadelphia Fed report)

* U.S. June housing starts rise surprising 9.1 percent

* New York City building code drives unexpected gain

* Jobless claims rose by 18,000 last week

By Patrick Rucker

WASHINGTON, July 17 (Reuters) - U.S. housing starts took a surprising jump in June, the government reported on Thursday, but only because of a change in New York's building code that briefly obscured a drop in single-family home building.

Total starts rose 9.1 percent in June but would have dropped 4 percent except for the actions of New York City builders who sped up multi-family projects before new construction rules took hold on July 1, the Commerce Department said.

The rate of building permits, which signal future building plans, rose 11.6 percent but would have climbed only 0.7 percent except for the code change, the government said.

"The housing starts number is bloated," said Pierre Ellis, senior economist at Decision Economics, New York. "The important thing is that single-family starts were weaker than expected."

Single-family home starts were down 5.3 percent in June from the month before.

The dollar was narrowly mixed after firming briefly after the distorted housing data. Treasury prices fell at first but pared losses later after a regional factory gauge showed activity shrinking in July, while stocks were flat.

JOBLESS CLAIMS RISE, MID-ATLANTIC FACTORIES WEAK

In a separate report, the number of workers filing new claims for jobless benefits rose by a less-than-expected 18,000 last week. The four-week average of new jobless claims, considered a better gauge of underlying labor trends, fell for the second consecutive week to 376,500 from 381,000.

"Jobless claims rose, but not dramatically, after a big decline a week earlier. They still suggest a weak economy, but not dramatic job cuts," said Gary Thayer, senior economist at Wachovia Securities, St. Louis, Missouri.

Factory activity in the U.S. mid-Atlantic region shrank again in July, reflecting a weakening economy and the strain of rising costs.

The Philadelphia Federal Reserve Bank said on Thursday its business activity index was minus 16.3 in July, the eighth straight month the index was negative. Economists polled by Reuters had forecast a reading of minus 15.0. Any reading below zero indicates contraction.

HOUSING DATA SKEWED, WEAK

Housing starts set an annual pace of 1.066 million units in June, the highest since February. Economists polled ahead of the report were expecting a 960,000 unit rate.

Building permits climbed to 1.091 million, higher than the 960,000 expected by economists.

After a second look at the data, analysts were unimpressed.

"Excluding the Northeast, starts would have dropped 4 percent. You take that out, and you're probably where you thought you'd be," said Robert MacIntosh, chief economist at Eaton Vance Corp, Boston.

Due to the building code change, home starts in the Northeast rose 102.6 percent over the prior month and permits rose 73 percent.

Midwest starts fell 10.5 percent and the West fell 8.2 percent, while starts in the South climbed 0.4 percent. (Additional reporting from Ellen Freilich and Herbert Lash in New York; Editing by Neil Stempleman)