A SMALLER-than-expected drop in annual profits helped Tesco shares rally despite continued uncertainty over the pace of its turnaround progress.

The shares improvement gave Tesco chief executive Philip Clarke some breathing space in the City as he pursues his £1 billion strategy of price cuts and store refurbishments in a bid to revive the chain's fortunes.

Across the wider London market, the FTSE 100 Index climbed 42.6 points to 6584.2.6 after China's economy grew by a better-than-expected 7.4% in the first quarter, down from 7.7% in the previous three months.

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The pound was given another push higher after the UK's unemployment rate fell below 7% to the lowest level for five years. The 7% level was a key threshold for the Bank of England to consider raising interest rates until it changed its forward guidance policy earlier this year.

The strength of sterling, which today rose by 0.4% to 1.68 against the US dollar and 1.22 versus the euro, has posed problems for London-listed companies with significant overseas earnings.

Luxury goods group Burberry warned yesterday that currency headwinds were likely to be "material" in the current financial year, although it more than offset this by delivering another set of strong sales figures.

Boosted by demand from consumers in China and Korea, retail revenues rose 13% to £928 million in the second half of its financial year.

This was enough to leave the group near the top of the FTSE 100 risers board with a gain of 3%, or 44p to 1466p.

Sports Direct International was the session's best performer as investors returned to the stock following a slump triggered by founder Mike Ashley's decision to sell £200 million worth of shares.

Shares recovered 42p to 787.5p, helped by an upbeat note from Bank of America Merrill Lynch as the broker said it saw potential for further strong trading due to online growth and expansion into Europe.

FTSE 250 rival JD Sports Fashion, which on Tuesday posted healthy profit figures, also benefited as its shares jumped 7% or 108p to 1708p. Tesco's rise of 7.5p to 293.8p came as it announced that profits were 6.9% lower at just over £3 billion, while fourth-quarter like-for-like sales slumped by 3%, after a 1.5% fall in the third quarter.

Elsewhere in the supermarket sector, Morrisons rose 1.2p to 202p and Sainsbury's lifted 1.2p to 320.6p.

In corporate updates, housebuilder Persimmon's shares were 10p higher at 1275p after it reported a strong start to the year, with weekly private sales rates per site up 25% on the same period a year earlier.

The biggest FTSE 100 risers were Sports Direct International up 42p at 787.5p, International Airlines Group ahead 19p at 395.2p, Ashtead up 42.5p at 888p and Travis Perkins ahead 64p at 1775p. The biggest faller was BAE Systems down 15.9p at 376p.