By Lucia Mutikani

WASHINGTON (Reuters) - Groundbreaking for new U.S.homes jumped in August to a four-month high, a tentative signof stability in the housing market after steep declines broughtby the end of a homebuyer tax credit.

While the data Tuesday further allayed fears that therecovery from the worst recession since the Great Depressionwas at risk, the Federal Reserve took a step toward a new roundof monetary easing to stimulate growth.

In a statement at the end of a one-day meeting, the U.S.central bank said its policy-setting committee "is prepared toprovide additional accommodation if needed to support theeconomic recovery and to return inflation, over time, to levelsconsistent with its mandate."

Analysts said the Fed was likely to resume purchases oflonger-term U.S. government bonds by year-end to keep interestrates low, but it would depend on economic data.

"By November, we believe that the evidence will continue toaccumulate of very weak growth and continued disinflationarypressures," said Brian Bethune, chief U.S. financial economistat IHS Global Insight in Lexington Massachusetts.

"There are greater-than-even odds that the FOMC will voteto take proactive measures on quantitative easing at theNovember meeting."

Housing starts rose 10.5 percent, the largest increasesince November, to an annual rate of 598,000 units, theCommerce Department said. Financial markets had looked for arise to just a 550,000-unit rate.

Prices of U.S. government bonds rallied as investorswelcomed the Fed's bias toward further monetary policy easing,but stocks ended flat to marginally lower. The dollar fellsharply against the yen and the euro.

WEAK RECOVERY

Construction was bolstered by a big jump in activity in thevolatile multi-family segment, which increased by nearly athird to an annual rate of 160,000 units in August.Single-family starts increased 4.3 percent to a 438,000-unitpace, the highest since June.

But analysts were concerned that most of the gains werecoming from the the multi-family segment, a smaller portion ofthe housing market, and saw only a subdued recovery.

The housing market has hit a soft patch following the endof a popular homebuyer tax credit in April and a survey onMonday showed sentiment among home builders remained mired atan 18-month low in September.

Although the recession ended in June last year, theunemployment rate is at a stubbornly high 9.6 percent, andthere is an oversupply of homes on the market.

"It is reasonable to believe that the post-tax creditplunge in housing activity, both sales and construction, isover, but we do not expect to see a strong recovery any timesoon," said Ian Shepherdson, chief U.S. economist at HighFrequency Economics in Valhalla, New York.

"Activity will likely creep higher as great affordabilitypulls people into the market, but that's about the best we canhope for in the foreseeable future."

Last month, new building permits for future homeconstruction rebounded 1.8 percent to a 569,000-unit pace,lifted by a 9.8 percent rise in permits for multi-family units.Analysts had expected a 560,000-unit pace. Permits for singlefamily homes fell for a fifth straight month. (Editing by Dan Grebler)