By Lucia Mutikani

WASHINGTON (Reuters) - U.S. industrial production rose at a faster-than-expected clip in March, the latest sign the economy was gaining momentum.

Groundbreaking for new homes also increased but remained well below the post-recession peak hit in November, signaling the drag the housing market is placing on the economy.

"Several parts of the economy are warming up, but housing is the exception," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "We are still on track for very strong second-quarter growth."

Output at the nation's factories, mines and utilities rose 0.7 percent last month after an upwardly revised gain of 1.2 percent in February, the Federal Reserve said on Wednesday.

The increase in industrial production, which beat economists' expectations for a 0.5 percent gain, reflected in part a 0.5 percent rise in manufacturing output. There were also hefty increases in production at mines and utilities.

The report added to data such as retail sales and employment in painting a bullish picture of the economy at the end of the first quarter after it was slammed by an unusually cold and disruptive winter.

The weather's loosening grip on the economy was also highlighted by the Federal Reserve's anecdotal Beige Book on Wednesday. The U.S. central bank said reports from its contacts suggested economic activity increased in most regions of the country in recent weeks.

Forecasting firm Macroeconomic Advisers estimates the brutal weather sliced off 1.4 percentage points from first-quarter gross domestic product and its end will boost second-quarter growth by 1.6 percentage points.

Growth estimates for the first three months of this year range as low as a 0.6 percent annual rate, which would mark a sharp deceleration from the fourth-quarter's 2.6 percent pace.

While the rest of the economy is perking up, housing continues to struggle. A separate report from the Commerce Department showed housing starts failed to bounce back as strongly as expected from winter's doldrums.

Groundbreaking activity increased 2.8 percent in March to a seasonally adjusted annual rate of 946,000, well below economists' expectations for a 973,000-unit rate.

Compared to March last year, starts were down 5.9 percent, the biggest decline since April 2011.

Though the cold winter weighed on homebuilding in December and January, activity has also been hampered by shortages of building lots and skilled labor, as well as rising prices for materials.

"There have been growing signs that the rebound in the housing market we have seen the past several years might be petering out," said Anthony Karydakis, chief economic strategist at Miller Tabak in New York.