* Q1 business investment up 0.3 pct to A$28 bln
* Data shows mining drag coming to an end
* April retail sales +1.0 m/m vs 0.3 pct consensus
* Retail sales running at avg 0.2 pct in 2017
By Swati Pandey
SYDNEY, June 1 (Reuters) - Australian business investment rose modestly in January-March after four straight declining quarters while April's retail sales rebounded vigorously from a tepid start to the year.
Figures from the Australian Bureau of Statistics (ABS) out on Thursday showed capital investment rose 0.3 percent in the first quarter to nearly A$28 billion ($20.7 billion) compared with expectations of a rise of 0.8 percent.
Spending by miners rose 0.5 percent in the quarter, the first increase since June 2014.
"We now know that the mining capex downturn is very close to done," said Su-Lin Ong, senior economist at RBC Capital.
"Non-mining plans are slightly positive so that's heading in the right direction. We are still waiting for stronger signs that the services sector is picking up the slack from mining."
Importantly, spending on equipment, plant and machinery surprisingly edged lower in the first quarter, anchoring expectations that the economy all but stalled in the period.
The ABS said on Thursday that real retail sales rebounded 1.0 percent in April, topping expectations of a gain of 0.3 percent and reversing a revised 0.2 percent fall in March.
The bounce-back will provide some comfort to the Reserve Bank of Australia (RBA) which has worried about the effect excessive borrowing in the red-hot property sector could have on spending elsewhere in the economy.
It also coincides with a downturn in home prices in Australia's capital cities. Prices fell 1.1 percent in May as regulatory pressure on banks to curb riskier lending appeared to rein in demand.
RBA Governor Philip Lowe has warned that high levels of household borrowing could curtail spending should consumers decide they have to put more aside to pay off debt.
Indeed, retail sales have been subdued over the past year or so, gaining 0.2 percent on average this year, reflecting wage growth stuck at a record low 1.9 percent and surging household debt.
The retail sector accounts for about 17 percent of Australia's A$1.7 trillion annual economic output, and is the second-biggest employer after healthcare.
Thursday's data showed a 3.6 percent rise in liquor sales, a 1.1 percent gain in eating out, and a 1.2 percent rise in food retailing. Sales at department stores climbed 2.5 percent.
"We suspect these rises were partly from stronger Easter-related trading. We don't look for a repeat in May though," said Citi economist Josh Williamson.
Economists believe April retail sales may have been distorted by the aftermath of a devastating cyclone that hit Queensland state at the end of March.
Retail sales were up 2.4 percent in Queensland after five consecutive months of falls as households replaced cyclone- and flood-damaged possessions.
Retail sales in New South Wales, Australia's most populous state and home to its most expensive housing, rose 0.1 percent. (Reporting by Swati Pandey; Editing by Eric Meijer)