People sit and watch the sunset over the Central Business District (CBD) skyline in Sydney, Australia, July 10, 2025. REUTERS/Hollie Adams

SYDNEY, Dec 2 (Reuters) - Australia's government spending jumped in the third quarter to add to a long-awaited rebound in business investment, setting the stage for a solid economic performance.

Data on Tuesday from the Australian Bureau of Statistics showed government spending added 0.4 percentage points to gross domestic product (GDP) in the September quarter, after barely contributing in the previous quarter.

That, coupled with solid business investment, suggested risks to economic growth are to the upside last quarter. The ABS also said on Tuesday net exports would subtract 0.1 percentage point from GDP, in line with expectations.

A Reuters poll showed the economy likely expanded 0.7% in the quarter, the fastest pace since the fourth quarter of 2022. That leaves the annual rate at 2.2%, above the Reserve Bank of Australia's estimate of trend growth at 2%.

The GDP data is due on Wednesday.

The stronger economic performance is one reason that inflation re-accelerated in the third quarter, which dashed all hopes for any more policy easing from the RBA after three rate cuts this year.

Adam Boyton, head of Australian Economics at ANZ, dropped his call for one more rate cut from the RBA next year given the recent inflation pressures and now sees the central bank on an extended hold.

"Signs of ongoing inflation pressures in the monthly CPI, GDP growth running around the RBA’s estimate of potential and the RBA’s view that the labour market is tight all suggest the RBA’s Board is likely to be cautious about further easing," said Boyton.

Swaps imply the RBA will remain on hold until the second half of next year, with a 70% probability of a rate hike at the end of 2026.

Separate released on Tuesday showed the total value of housing stock in Australia jumped to a record high of A$12 trillion ($7.85 trillion) last quarter, boosting household wealth and underpinning consumer spending.

Home prices have leapfrogged almost 8% this year to new record highs as policymakers worry financial conditions might not be restrictive enough to keep inflation in check.

($1 = 1.5295 Australian dollars)

(Reporting by Stella Qiu and Wayne Cole; Editing by Christian Schmollinger and Shri Navaratnam)