SYDNEY (AFP) - The Australian economy expanded a better-than-expected 1.1 per cent in the first quarter of 2014 with a strong rise in mining exports driving growth, data showed on Wednesday.

Annual growth was 3.5 per cent, the Australian Bureau of Statistics said, compared with analyst expectations of 3.1 per cent.

Markets watchers expected growth in the three months to March to be 0.8 per cent.

The Australian dollar rose by a third of a US cent to 92.92 US cents on the back of the strong quarterly figures, which followed a 0.8 per cent expansion in the three months to December.

The mining sector made up 80 per cent of growth in the March quarter as net exports contributed 1.4 percentage points to GDP.

Consumption added 0.3 percentage points, but some of the gains were partially offset by inventories, which subtracted 0.6 percentage points.

The improved GDP figures were foreshadowed by the Reserve Bank of Australia in its monthly meeting on Tuesday, where it held the cash rate at a record low of 2.5 per cent for the 10th straight month.

Central bank governor Glenn Stevens flagged a "period of stability" in monetary policy in a cautiously optimistic statement about the Australian economy.

Mr Stevens said while growth firmed at the start of the year, partly from "very strong increases" in mining exports, such rises would likely become smaller over the next few quarters.

The Australian economy has not slipped into recession - as measured by two consecutive quarters of negative growth - for more than two decades.

The country is exiting an unprecedented boom in the mining sector, which helped to boost the economy even as other nations were hit by the global financial crisis.