* Housing starts rise to 917,000-unit rate in February * Permits, single-family starts at highest since 2008 * Data shows U.S. housing recovery gaining traction By Jason Lange WASHINGTON, March 19 (Reuters) - Groundbreaking to build U.S. homes rose in February and permits for construction climbed to their highest level since 2008, signs the housing market recovery is gathering steam. The Commerce Department said on Tuesday that housing starts rose 0.8 percent last month to a 917,000-unit annual rate. Permits for future construction jumped 4.6 percent to a 946,000-unit rate, the quickest since June 2008. The housing data was just the latest to suggest the economy has built a fair bit of momentum in the first quarter. Housing is helping counter the drag from tighter fiscal policy as Washington works to shrink the federal budget deficit. "Housing will be a major contributor not just to GDP growth, but also to job creation," said Dan Heckman, a fixed income strategist at The Private Client Reserve at U.S. Bank in Kansas City, Missouri. In February, employers added 48,000 construction jobs, the most since before the recession. Despite the recent improvements, the Federal Reserve is expected to push forward at a meeting on Tuesday and Wednesday with plans to buy $85 billion in bonds per month until its sees a more substantial improvement in the labor market outlook. It will announce its decision at 2 p.m. (1800 GMT) on Wednesday. Home building added to economic growth last year for the first time since 2005 and the figures on starts and permits reinforced the view that it will provide stronger support this year. "Home building continues to recover and add to the recovery," said Gus Faucher, an economist at PNC Financial Services in Pittsburgh. "The rise in permits suggest we will have a solid spring." SOLID SPRING The housing data provided support for U.S. stock prices, though the Standard & Poor's 500 Index closed lower after lawmakers in Cyprus rejected a proposed levy on savings in banks as a condition for a European bailout. The vote against the plan revived fears about the stability of the euro zone, and yields on U.S. government debt also fell. In the United States, steady improvement in employment has boosted demand and a dearth of homes on the market has helped push prices higher. These two factors are expected to drive construction of new homes throughout 2013. Starts for single-family units, which comprise about two thirds of the total, edged up 0.5 percent in February to their highest level since June 2008. On Thursday, data is expected to show sales of existing homes rose in February to the highest level since 2009 when a federal tax credit for home buyers expired. Still, the housing market remains a shadow of its former self, with starts at less than half of their pre-recession peak and near levels seen in the early 1990s. Also, the recovery has been bumpy. In March, homebuilder sentiment slipped to the lowest level in five months as supply chain concerns and rising costs dented enthusiasm, according to data released on Monday.