* Net exports to contribute much more to Q1 growth than expected
* Upside risk now seen to Q1 GDP on Wednesday
* Building approvals for April surprisingly strong as well
* Markets no longer fully pricing a rate cut this year
By Ian Chua
SYDNEY, May 31 (Reuters) - A strong rebound in Australian exports last quarter has helped fill a hole left by slumping business investment in the economy, adding to the case for the central bank to keep its powder dry at its policy meeting next week.
Net exports alone likely added a whopping 1.1 percentage points growth to Australia's $1.2 trillion gross domestic product (GDP). First quarter GDP is due on Wednesday.
The figures from the Bureau of Statistics on Tuesday blew away forecasts for net exports to add 0.7 percentage points to growth. Export volumes jumped 4.4 percent while imports slipped 0.8 percent.
Separately, building approvals for April rose 3.0 percent, confounding forecasts for a 3.0 percent fall.
The upbeat data shook the market's expectations for another cut in interest rates this year and sent the Australian dollar rallying more than half a U.S. cent to a high of A$0.7240 AUD=D4 .
"We see an even stronger case for rates to be on hold at 1.75 percent in June and July, awaiting the July 2 election and Q2 consumer price index report on 27 July," said Annette Beacher, chief strategist at TD Securities.
The healthy growth figures give the Reserve Bank of Australia (RBA) room to wait to see whether inflation picks up before deciding if another rate cut is needed.
Earlier this month, the RBA reduced the cash rate to a record low 1.75 percent, citing disturbingly low inflation. Investors are now giving a mere 6 percent chance of a follow-up cut next Tuesday from about a 75 percent chance just after the May cut.
Other data out on Tuesday showed the country's current account deficit narrowed 8 percent to A$20.8 billion in the quarter, while government investment rose 0.7 percent.
That leaves the current median forecast for a 0.6 percent increase in first quarter GDP, and for annual growth to cool to a below-potential 2.6 percent, looking slightly pessimistic.
"There is quite a bit of upside risk to GDP. We're going to end up with growth well and truly above anything we've seen in the U.S., Japan and Europe," said Shane Oliver, head of investment strategy and chief economist at AMP Capital.
Analysts at Westpac revised their forecast for first quarter GDP growth to 0.7 percent, from 0.6 percent previously. JPMorgan (NYSE:JPM) lifted their forecast to 0.9 percent, from 0.7 percent.