U.S. housing starts rose far less than expected in March and permits recorded their biggest drop since last May, which could raise concerns about the economy's ability to bounce back from a soft patch hit in the first quarter.

Groundbreaking increased 2.0 percent to a seasonally adjusted annual pace of 926,000 units, the Commerce Department said on Thursday. That left the bulk of February's decline, which had been blamed on bad weather, intact.

Starts for single-family homes rose, while groundbreaking for the multifamily segment fell last month. February's starts were revised up to a 908,000 million-unit pace from the previously reported 897,000-unit rate.

Economists polled by Reuters had forecast groundbreaking rising to a 1.04 million-unit pace in March.

Permits for future home construction declined 5.7 percent to a 1.04 million-unit pace. Permits have been above a 1 million-unit pace since July.

The economy stumbled early in the year under the weight of a harsh winter, a resurgent dollar, weaker global growth and a now-resolved labor dispute at the West Coast ports.

There are expectations that growth will rebound in the second quarter, but the tepid housing starts report and a struggling manufacturing sector suggest the momentum will probably not be strong enough for the Federal Reserve to start raising interest rates before September.

Groundbreaking rebounded sharply in the Northeast and Midwest, which had been affected by snowy and cold weather in February. Starts, however, tumbled 19.3 percent in the West and fell 3.5 percent in the South, where most of the home building takes place.

Last month, single-family homes groundbreaking, the largest part of the market, rose 4.4 percent. Groundbreaking for the multi-family homes segment fell 2.5 percent.

Single-family permits rose 2.1 percent last month. Multi-family permits plunged 15.9 percent.