Sales of new homes edged up 1.0 percent in March, the second advance in a row, the government said, but the increase was due solely to purchases in the West as sales dropped elsewhere.

The departments of Commerce and Housing and Urban Development reported that sales totaled a seasonally adjusted annual rate of 490,000, up from 485,000 the previous month.The departments also revised the February increase to an even stronger 18.6 percent. February sales originally were reported to have gained 16.2 percent, the first advance since a 3.2 percent gain last November. Sales in January had dropped 11.9 percent.

Analysts had attributed many of the February sales to favorable weather and mortgage rates that dropped as low as 9.25 percent for fixed-rate loans. Rates jumped back as high as 9.59 percent in March.

Analysts see a rebound in the housing industry as critical to any recovery from the recession since it affects not only home sales and construction jobs but activity in other industries, such as home appliances and furnishings.

The report said there were 308,000 homes on the market in March, the lowest number since 301,000 in February 1984. Analysts believe the small inventory could be a stimulant to builders.

The Commerce Department reported earlier that housing starts, which had shot up 17.2 percent in February, slipped back 9.3 percent in March. But analysts were heartened by a the second monthly gain in applications for building permits, often a barometer of future activity.

Still, the Labor Department said construction jobs dropped by 72,000 in March, raising the number of lost jobs in that sector to 500,000 since last May.

Sales so far this year are 21.1 percent below those of the first three months of 1990.

While sales fell in March, the median price of new homes rose 4.2 percent to $125,000. The median price means half of the homes cost more and half cost less.

At the same time, the average price of a new home jumped 8.6 percent to $163,400, the highest on record. The previous high was $154,300 in December 1989.

Sales jumped 22.0 percent in the West, to a 155,000 rate, following a 10.4 percent gain in February. But they slumped elsewhere.

The Midwest posted the biggest drop, down 15.1 percent to 90,000 units after gaining 65.6 percent a month earlier.