Finally got through to OED. Here’s the first cite for the sexual sense.
c1888-94 My Secret Life I. 87 It seemed to me scarcely possible, that the sweet, well dressed, smooth-spoken ladies..could let men put the spunk up their cunts.
And this must be the different Australian sense in Cassel’s Slang to which Eyehawk made reference:
[5.] d. Austral. slang. A sexually attractive person; freq. as young spunk.
1978 J. ROWE Warlords 205, I can always round up a boatload of horny looking young spunks, but there’s no guarantees for old gits like us from the amateurs.
Etymologically, OED states that it is obscure but “probably related to funk”. Surprising at first, but comparing the first definitions for both words one begins to see the light.
Spunk, n 1. Sc. and dial. A spark, in various senses.
Chiefly in fig. use: cf. SPARK n.1 1d and 2.
Funk, n 1. A spark.