U.S. industrial output rose 0.2 percent, while housing construction dropped by 1.9 percent in January, the government reported Wednesday.

The Federal Reserve said production at U.S. factories, mines and utilities increased for the fourth consecutive month - despite a sharp drop in the production of autos - following gains of 0.4 percent in both November and

December.Those gains helped push the production level up by 6 percent in the past 12 months, providing further evidence of the strength in the manufacturing sector.

The weaker dollar has been a major benefit to U.S. industry, making U.S. products competitive once more on overseas markets and boosting exports to record levels.

Earlier, the Commerce Department said January's seasonally adjusted annual rate of housing construction stood at 1.38 million units a month, the lowest level since the end of the last recession.

Some analysts had expected a small rebound in the building of new homes and apartments, following December's 15.5 percent plunge.

They have been keeping a close eye on housing since it is often one of the first sectors to turn down at the start of a new recession.

But the jury is still out on that question.

On Tuesday, Federal Reserve Chairman Alan Greenspan's remarks that the economy appears to be balanced riled the bond market, but Wall Street ignored him and gave the Dow Jones industrial average its best showing in more than a month.

Mr. Greenspan's comments in a Washington speech were interpreted by bond traders as a signal that the nation's central bank won't move quickly to push interest rates down to stimulate the economy, as had been widely expected.

He spoke against a background of government statistics that suggested the economy isn't slowing down, despite the warning signs given by the stock crash four months ago. On Friday, for example, the government reported that the nation's trade deficit shrank in December and inflation increased.

The 30-year Treasury bond, the most closely watched issue, fell about $10 per $1,000 in face value after Mr. Greenspan spoke, though the price recovered somewhat later. The bond's yield, which moves inversely to price and can be a sensitive indicator of interest rates, rose to 8.46 percent from 8.43 percent late Friday.

On Wall Street, investors largely overlooked Mr. Greenspan's remarks and the bond market's reaction, buying stocks in a late-afternoon rally that baffled strategists because signs of higher interest rates usually depress stock prices.

The Dow Jones average rose 22.71 points to 2,005.97, its first finish above 2,000 since Jan. 8, when computerized selling and a presidential panel's report on the October stock crash sent the index down 140.58 points to 1,911.31.

The value of all U.S. stocks rose $16.9 billion Tuesday, according to the Wilshire Associates 5,000 Equity Index.





NEW YORK - Construction contracts will drop 4 percent this year, led by steep declines in office and other commercial building and lesser drops in housing and public works projects, according to a forecast released Wednesday.

Builders will commit to $246.2 billion worth of new contracts in all of 1988 compared with $255.2 billion last year, according to an update of the 1988 Dodge-Sweet's Construction Outlook, put out by McGraw-Hill Information Systems Co.

In coming months, construction activity will only be slightly affected by the stock market crash of last October, the McGraw-Hill unit said.

Since October, consumer confidence has been shaken, federal budgetary restraint has been tightened and expectations for the economy's growth in 1988 have been lowered, said George A. Christie, chief economist at the company. At the same time, however, the outlook for interest rates has brightened.

Accordingly, so long as a recession is avoided, this mix of positive and negative developments will not pose a serious threat to a credit-sensitive industry such as construction, he said.

Mr. Christie predicted non-residential building would drop 7 percent, to $89.5 billion this year, led by the highly overbuilt office market.