By James Glynn and Rhiannon Hoyle

SYDNEY--Australian firms scaled back investment spending by 4.0% in the third quarter from the second quarter led by weakness in mining investment.

Economists surveyed had on average expected business investment to fall 3.0% over the quarter. In the year through to the end of September, total new capital expenditure has fallen by 13.7%.

The data also showed that companies expect to invest 106.93 billion Australian dollars in the year to June 30 2017, a number 1.3% higher than a previous estimate and 14.3% below a corresponding estimate a year ago.

In the third quarter, spending on equipment, plants and machinery fell by 1.9% from the second quarter, the Australian Bureau of Statistics said Thursday. Investment inbuildings and structures fell by 5.7% over the quarter.

Australia's economy continues to transition away from its reliance on mining and energy to power growth. A downturn in mining investment since the boom peaked in 2011 has been a persistent headwind to GDP.

The Reserve Bank of Australia recently said there were signs that downturn was abating, adding a recent jump in coal and iron ore prices will provide a lift to incomes in the economy.

Some question how long that surge in key commodity prices will last. Still, others like Robert Rennie, the global head of currency strategy at Westpac said the market might be underestimating just how "sticky" the rise will be through next year.

Iron ore prices, benefiting from a boom in demand from Chinese steelmakers and speculators alike, are up roughly 70% on the start of this year. Earlier this week, the commodity's price broke above US$80 a metric ton for the first time in two years, afterhaving slumped to a more-than decade low around US$37 a ton last December because of a global oversupply.

Coal prices have staged an even greater comeback. The energy commodity has been "the spectacular turnaround story of 2016," Morgan Stanley analyst Tom Price said recently.

Prices for Australian coking coal, used in steelmaking, have more than tripled since mid-year.

The rally has hinged on reforms in China, where miners earlier in the year were told to limit the number of days they operate.

More recently, those rules have been relaxed, which has slightly cooled prices for some types of coal.

Mining executives have expressed cautious optimism over the recovery in commodity prices.

"We have seen early signs of markets rebalancing," BHP Chief Executive Andrew Mackenzie said in October, although he said iron ore and coal in particular had risen more strongly than anticipated and continued to face challenges from rising mine supply.

Mining companies have continued to tighten their belts following years of heavy investment in new operations. Last week, Rio Tinto PLC said it would spend even less than anticipated on projects this year and step up a productivity offensive intended to save it billions. Still, it said 2016 would likely be the low point for project expenditure.

A boom in housing construction across Australia's east coast, which has helped to offset the mining downturn, is expected to weaken next year.

Record numbers of apartment are being built, and emerging concerns about oversupply are set to see construction slow and prices fall, according to economists.

-Write to James Glynn at james.glynn@wsj.com

(END) Dow Jones Newswires

November 30, 2016 19:51 ET (00:51 GMT)

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