* Housing starts rise, permits at 4-1/2 year high
* Cyprus aims to exempt small savers from deposit tax
* Indexes: Dow up 0.3 pct; S&P up 0.3 pct; Nasdaq up 0.3 pct
By Angela Moon
NEW YORK, March 19 (Reuters) - Wall Street edged up on Monday after two sessions of declines, buoyed by signs the U.S. housing market recovery is gathering pace and as investors shrugged off developments in Cyprus that may lead the country into default.
Data showed that groundbreaking to build new U.S. homes climbed in February and new permits for construction rose to their highest since 2008, in signs the nation's housing market recovery was gathering steam.
After adjusting over the past two sessions, "the market could have more strength to trade to higher levels, new records," said Kent Engelke, chief economic strategist at Richmond, Va.-based Capitol Securities Management, which has about $4 billion under management.
A weekend announcement that Cyprus would break with previous practice and impose a levy on bank deposits as part of a 10 billion euro ($13 billion) EU bailout prompted some turmoil on global financial markets on Monday.
Cyprus's parliament was set to reject a divisive tax on bank deposits in a vote on Tuesday, a government spokesman said. The government has proposed to spare small savers from the tax in a bid to win parliamentary backing for an international bailout and avoid default and a banking collapse.
The Dow Jones industrial average was up 44.81 points, or 0.31 percent, at 14,496.87. The Standard & Poor's 500 Index was up 3.83 points, or 0.25 percent, at 1,555.93. The Nasdaq Composite Index was up 9.99 points, or 0.31 percent, at 3,247.58.
The Dow ended a 10-day winning streak on Friday as investors booked profits.
Citigroup Inc agreed to pay $730 million to settle a class action lawsuit on behalf of investors who said they were misled by the company's disclosures. The stock was up 1.3 percent at $46.83 in early trading.
Drugmaker Affymax Inc said it was considering selling itself or filing for bankruptcy among a range of alternatives, as it struggles to stay afloat following the recent recall of its sole commercial product, the anemia drug Omontys. The stock plunged 56 percent to $1.30.
Boeing Co technical workers voted by a wide margin to ratify a new four-year labor agreement, ending the possibility of a strike that could have cut production at a critical time for the aircraft maker. The stock was up 0.9 percent at $85.98.
BlackRock Inc, the world's largest money manager, will lay off nearly 300 employees, or about 3 percent of its workforce, according to an internal memo obtained by Reuters. The stock was little changed at $255.33.