WASHINGTON (Reuters) - U.S. housing starts fell 3.6 percent in June, the government said on Wednesday, as building activity fell slightly short of expectations after a surge in May.

Ground breaking for new homes eased to a seasonally adjusted 1.672 million unit annual rate from an upwardly revised 1.735 million unit rate in May, the Commerce Department reported.

Starts were below the projections of analysts polled by Reuters, who had forecast a 1.677 million unit rate.

Permits, an indication of future activity, rose 1.4 percent to a seasonally adjusted annual rate of 1.7 million.

Regionally, starts were mostly lower, falling by 7.6 percent in the South -- the nation's busiest home-building region -- by 2.2 percent in the West, and by 0.9 percent in the Midwest. Ground-breaking for new homes climbed 6.1 percent in the Northeast.

Despite the month's decline, economists expect housing to continue to be a strong area for the U.S. economy, which is slowly recovering from a slump that began in March 2000. Federal Reserve Board Chairman Alan Greenspan told a Senate panel on Tuesday that mortgage rates of below 7 percent, immigration, and limitations on building are keeping demand for housing strong.