Sales of new US homes have reached a record level, squashing doubts about the strength of the economy.

Sales shot up by 6.7% in July, far ahead of the increase predicted by economists.

The sharp increase has provided new optimism about the health of the economy at a time when the speed and depth of the recovery was under scrutiny.

"There is enough strength in the housing sector to avoid a double-dip recession," said Peter Cardillo, chief strategist at Global Partners Securities, referring to a second period of economic contraction after a brief recovery.

"The numbers are very strong and indicate that the sector of the economy that has been carrying us is still doing so," he added.

Recession buster

The housing boom in the US - as in the UK - has been fuelled by low interest rates and an increase in the number of single people clambering onto the property ladder.

Federal Reserve policy-makers have held interest rates at 41-year lows all year long.

And they have signalled they are willing to cut rates again if economic conditions worsen.

The US housing market was one area of the economy that remained buoyant despite last year's recession.

This year, the wave of corporate scandals has scared off stock market investments, leaving houses as an attractive alternative.