(For a Reuters live blog on U.S., UK and European stock markets, click LIVE/ or type LIVE/ in a news window)

* Imperial Brands up first-half sales rise

* UK unemployment hits 48-year low

* ContourGlobal soars on KKR buyout offer

* FTSE 100 up 0.7%, FTSE 250 adds 0.7%

May 17 (Reuters) - UK stocks advanced on Tuesday on hopes that China would ease its COVID-19 curbs and regulatory scrutiny, although strength in the pound following an upbeat employment report capped gains for the export-oriented FTSE 100.

The blue-chip index closed 0.7% higher, but lagged its continental peers as the pound jumped more than 1%.

Britain's unemployment rate fell to its lowest since 1974 in the first quarter of 2022, but soaring inflation led to the biggest annual fall in real earnings excluding bonuses since 2013.

"Even if employment stays supported, we suspect we will still see some of the impetus behind wage growth fade. This underscores the message from the BoE (Bank of England) that it probably won't need to hike too much further over the coming months," ING economist James Smith said in a note.

BoE Governor Andrew Bailey said on Monday the surge in inflation was the central bank's biggest challenge since it gained independence in 1997.

The BoE this month raised interest rates to their highest level since 2009, but warned that Britain risks a recession.

Still, a large presence of commodity-linked and defensive stocks in the FTSE 100 has helped it outperform this year as the Ukraine war boosted oil and metal prices, while concerns about a global economic slowdown drew investors to less risky stocks. The index is up 1.8% in 2022.

The domestically focused FTSE 250 gained 0.7%.

Among top movers on Tuesday, Imperial Brands jumped 7.9% after reporting a marginal increase in first-half sales, helped by demand for e-cigarettes and heated tobacco products.

ContourGlobal surged 32.9% to the top the FTSE midcap index after KKR & Co agreed to buy the London-listed power generation firm for 1.75 billion pounds ($2.16 billion).

Strength in sterling dented shares of global companies such as Unilever, AstraZeneca and GlaxoSmithKline . Societe Generale downgraded Unilever's stock to "sell."

(Reporting by Sruthi Shankar and Amal S in Bengaluru; Editing by Subhranshu Sahu, Aditya Soni and Ed Osmond )