WASHINGTON (Reuters) - U.S. construction spending inched higher in July but fell short of market expectations despite a healthy increase in private residential construction outlays, a government report showed Wednesday.

Construction spending was a seasonally adjusted $879.8 billion in July, the Commerce Department said, up 0.2 percent from $877.8 billion in June. Analysts polled by Reuters had expected a 0.5 percent increase. June's rise was revised higher to a 0.7 percent gain.

Private residential construction, the largest spending category, climbed 0.6 percent to a seasonally adjusted $449.6 billion in July, the largest increase since a 1.9 percent jump in January. It was the third consecutive monthly increase for that category.