NEW YORK (CNN/Money) - Construction spending in the United States fell in June, the government reported Monday, coming in below estimates as builders held off on starting new projects amid a rising interest rate environment.

Construction spending dropped 0.3 percent in June, the Commerce Department reported, to an annual rate of $985.2 billion. Wall Street had expected the reading to hold steady at $987.8 billion, according to Briefing.com.

The department also revised May's initial 0.3 percent gain down to a 0.1 percent gain.

Residential construction spending fell 0.6 percent in June, the first decrease since February 2003. June's decline was the largest monthly drop in residential outlays since a 3.7 percent drop in January 2002.

The drop in residential construction may point to a cooling of the hot housing market as a rise in interest rates makes home buying more expensive. However, new home and existing home sales remained strong in June.

Private non-residential construction was unchanged in June, after a 1 percent drop in May.

Public spending rose 0.2 percent and state and local government construction spending hit an all-time high in June, led by a surge in construction of power facilities.  

--from staff and wire reports