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Tesco has reported a slower rate of decline in sales at its UK stores as it tries to stem the flow of customers switching to discount chains.

UK sales fell 1.3% for the three months to the end of May, compared with a 4% decline a year earlier.

The result beat analysts' forecasts of a fall of 1.6%-3%, and was better than the 1.7% fall reported in the fourth quarter of the last financial year.

Tesco chief Dave Lewis said it was a "step in the right direction".

"We are fixing the fundamentals of shopping to win back customers and relying less on short-term couponing," he said.

Shares in Tesco, the UK's largest supermarket chain, closed up 2.7% at 223.65p.

Including its international businesses, sales across the Tesco group dropped 1.3% in the quarter compared with a 3.4% dip a year ago.

Mr Lewis, who took the helm in September, is trying to revive the fortunes of Britain's largest supermarket after it reported the worst loss in its history in April.

Tesco reported a full-year pre-tax loss of £6.4bn, one of the largest in UK corporate history. About £4.7bn of the losses were the result of the fall in property value of its UK stores, 43 of which it said would close.

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Analysis: Kamal Ahmed, BBC business editor

To understand why Tesco is slowly turning the corner, it is worth looking at the rather mundane world of the humble ham sandwich.

Tesco now offers 30% fewer sandwich lines after it realised that the wide range it was selling meant that customers often could not buy their favourite, simple sandwich, like, say, one with ham in it.

So, it reduced the range and increased the supply of the top sellers. Customers were happier that they could buy what they wanted and the number of transactions increased.

Read Kamal's blog in full

The trading update from Tesco comes ahead of an annual meeting of shareholders later.

Tim Bush of pension advisers Pirc told the BBC's Today programme that investors are likely to question payoffs for Tesco's former chief executive and finance director Philip Clarke and Laurie McIlwee, who shared £2.2m in severance pay after the supermarket said it was "contractually committed" to make the payments.

The pair, who left the firm last year, were awarded £1,217,000 and £970,880 respectively.

The payments were initially suspended while Tesco investigated last year's £263m accounting scandal.

"Things have stopped getting worse but they haven't yet started getting better," said Mr Bush.

Tesco said data from researcher Kantar Worldpanel had also shown that 180,000 more customers shopped at the supermarket in the 12 weeks to 24 May.