WASHINGTON (Reuters) - Sales of new U.S. homes fell in November to the lowest rate since 1995, but business activity perked up this month, according to reports on Friday that showed pockets of strength in the economy despite a housing sector meltdown.

New single-family home sales dropped 9 percent to an annual rate of 647,000 in November from a downwardly revised pace of 711,000 in October, the Commerce Department said.

Analysts polled by Reuters were expecting a seasonally adjusted annual sales rate of 720,000.

The data weighed on shares of U.S. home builders, although major stock market indexes were up slightly in late-morning trading. Prices for U.S. government bonds rose and the dollar dipped against major currencies.

Rising mortgage delinquencies and foreclosures have roiled financial markets in recent months as a host of securities tied to those failing loans lost value. Banks have written off tens of billions of dollars worth of bad debts, and lending terms have tightened, which threatens to stall U.S. economic growth.

The U.S. Federal Reserve has lowered its benchmark interest rate three times since mid-September in an effort to insulate the economy from the housing and credit market turmoil. Economists widely expect further cuts in early 2008.

Friday's housing report suggested the new home market may have more room to fall as the inventory of houses for sale rose to 9.3 months' supply from 8.8 months in October. The median sales price of new houses sold in November dipped to $239,100 from $240,100 a year earlier.

"Demand for new homes continues to fall in an environment of price uncertainty," said Joseph Brusuelas, chief U.S. economist at IDEA Global in New York.

Sales in the U.S. Midwest were particularly weak, tumbling 27.6 percent to the slowest pace since July 1991.

The new home sales report has a margin of error of plus or minus 13.9 percent, which makes it vulnerable to large revisions from month to month. Like October, the figures for August and September were also revised lower.

MANUFACTURING SECTOR PICKS UP

Outside of housing, the economy looked somewhat brighter as business activity expanded in the U.S. Midwest and in New York City in December, separate reports showed.

The National Association of Purchasing Management-Chicago's business barometer rose to 56.6, its strongest since June, from 52.9 in November. Economists had forecast a reading of 51.8. Anything above 50 indicates expansion.

The National Association of Purchasing Management-New York's index rose to 449.1 in December from 445.0 in November, rising for a third straight month.

The report on Midwest business activity, in particular, helped ease concerns raised by a report on Thursday that showed weak orders for U.S.-made durable goods in November.

Analysts said it suggested the heartland's many export-related businesses are getting a boost from the weak U.S. dollar, even as domestic demand weakens.

"You can say that the manufacturing sector is not falling off the cliff, and although we are seeing a slowdown (in the overall economy) at least the industrial side is going to keep supporting the economy," said Kurt Brunner, portfolio manager at Swarthmore Group in Philadelphia.

(Additional reporting by Ellen Freilich, Kristina Cooke and Chris Reese in New York and Ros Krasny in Chicago; Editing by Neil Stempleman)