WASHINGTON (REUTERS) - US construction spending dropped to a seven-month low in March, as public outlays recorded their largest drop since 2006, which could cause the first-quarter economic growth estimate to be trimmed.

Construction spending fell 1.7 per cent to an annual rate of US$856.72 billion (S$1.05 trillion), the lowest level since August, the Commerce Department said on Wednesday. Spending increased 1.5 per cent in February.

The across-the-board decline in construction spending was the latest indication that the US economy exited the first quarter with less momentum and suggested tighter fiscal policy was starting to take a toll.

The report also raised the risk of a downward revision to the government's moderate growth estimate of a 2.5 per cent rate for the first quarter.

Construction spending in March was depressed by a 4.1 per cent drop in public construction projects to a 6-1/2 year low. The percentage decline was the largest since March 2002.

Outlays on federal government projects fell 1.7 per cent.

State and local spending, which is far larger than federal projects, tumbled 4.3 per cent, the biggest drop since March 2002.

Spending on private construction projects also fell, slipping 0.6 per cent. Residential spending rose 0.4 per cent, but those gains were offset by a 1.5 per cent drop in spending on private nonresidential structures.