Australian real gross domestic product (GDP) rose by a seasonally adjusted 1.2 per cent in the June quarter, the Australian Bureau of Statistics said today.

This compared with an upwardly revised 0.7 per cent in the March quarter.

"The risk was that it was going to be on the upside of expectations, given that boost in net exports and also the fact that household consumption was clearly the key driver in the result, up by 1.6 per cent in the quarter," CommSec economist Savanth Sebastian said. "Effectively we are at the sweet spot."

"Overall 1.2 per cent growth is the best quarterly growth figure we've had in three years, so all analysts and economists looking at the data should probably celebrate it, given the fact that it's probably as good as it's going to get."

Over the year to June, GDP rose 3.3 per cent.

The median market forecast was for growth of 0.9 per cent in the June quarter, and an expansion of 2.7 per cent in the year to the end of the June quarter.

Mr Sebastian said the headline result was likely to be the strongest for at least the next few quarters.

The strong data was driven by the tail end of government stimulus, the knock-on effects to the boost in home building which started late in 2009, and the revival of the private sector, he said.

"But forward looking data over the last couple of weeks has certainly been patchy and it's pointed to more subdued activity levels going forward and I think there's still an inherent attitude by consumers and businesses to be conservative," Mr Sebastian said.

This was reflected in the capital expenditure figures released last week.

They showed businesses were reluctant to go ahead with projects until they see an improvement in the global economy, particularly with concerns about a double dip slowdown in the US.

Mr Sebastian said the result would not alter the interest rate story for the Reserve Bank of Australia (RBA).

"A period of interest rate stability is clearly called for," he said.

"The last couple of rate hikes have taken the edge of the Australian economy.

"We've seen some patchy data and what we need now is for a couple of months for consumers and businesses to adjust to the rate hikes that have taken place and to get a better gauge of how some of the older economies like the US and Europe are travelling.

"So that effectively means rates on hold towards the end of the year, but we're still pencilling in one rate hike before the close of 2010."

The Australian dollar jumped on the GDP report, while bonds weakened on the news.

RBC Capital Markets senior economist Su-Lin Ong said it was a strong number, well above expectations.

"If we look at the composition of growth in the quarter there were some encouraging signs.

"Households proved fairly resilient in Q2 (the second quarter), with private consumption helping to contribute to growth and dwelling investment.

"Net exports contributed for the first time in several quarters and that reflects both stronger export volumes amid a global recovery as well as higher export prices.

"Growth is already running around trend pace and will potentially stay reasonably firm around the next 12 months as terms of trade boosts income and works its through the economy.

"What it does is highlight that the market pricing and speculation of a possible interest rate cut by year end is not justified and more than likely the next move in rates will be upwards," Ms Ong said.

AMP Capital Investors senior economist Bob Cunneen said the strong GDP result was exceptional, but he did not expect another like it this year.

He said the biggest shock in the data was total final consumption expenditure, which rose 1.6 per cent in the quarter to be up four per cent year on year.

But there was a downside for borrowers and home owners because the strong data put a rate rise of quarter to half a per cent by the end of the year back on the table, he said.

"The strength of commodity prices, the boost to national income, is quite dramatic," he said.

A quarter of a per cent rate rise would take the cash rate to 4.75 per cent and add about $48 a month to repayments on a $300,000 mortgage.

The central bank board is due to meet on Tuesday for its regular monthly interest rate decision.