By Tommy Stubbington and Clare Connaghan 

European shares bounced back Wednesday after stronger-than-expected Chinese economic growth data trumped market jitters over an escalation of tensions between Ukraine and Russia.

In currency markets, sterling surged to a two-month high after some robust U.K. employment data further boosted the perception that the Bank of England is likely to be the first major central bank to raise interest rates.

The Stoxx Europe 600 index closed 1.3% higher, more than recovering Tuesday's 1.0% decline. Germany's DAX added 1.6%, France's CAC-40 was 1.4% higher and the U.K. FTSE 100 added 0.7%.

The gains followed data showing Asia's largest economy grew 7.4% in the January-to-March period compared with a year earlier, a touch higher than expectations of 7.3%, but below growth of 7.7% in the final quarter of last year.

The news also gave Wall Street shares a boost, with the S&P 500 up 0.7% as European markets closed.

"The reported economic slowdown in China in the first quarter wasn't as sharp as some had feared," said Lee Hardman, a currency analyst at Bank of Tokyo-Mitsubishi in London.

The China gross domestic product news helped investors to brush aside developments in Ukraine, where the military fired its first shots Tuesday in the fight to regain control of the restive east of the country from pro-Russian separatists.

The Russian ruble was slightly stronger Wednesday despite the developments, while the RTS stock index gained 1.0%.

Ukraine's currency, the hryvnia, continued to gain ground, after Monday's three-percentage-point rate rise by the country's central bank. Most recently, the hryvnia was quoted at 11.25 against the dollar, up more than 10% from its record low on Monday.

"Developments in Ukraine and Russia haven't been a key driver of price action recently as the market takes a wait-and-see approach and seems to view any major ramifications as more of a tail risk than front and center," said analysts at Rabobank.

"That said, this could turn very quickly and it could be argued that the market is being somewhat complacent," they added.

In commodities markets, gold was down 0.2% at $1,300.50 a troy ounce, and Brent crude oil was 0.3% higher at $109.71 a barrel.

Meanwhile, sterling jumped 0.5% against the dollar to trade at $1.6820, the highest since mid-February. The catalyst was an unexpectedly sharp drop in U.K. unemployment to 6.9%, below the 7% threshold at which the BOE has previously said it would begin considering a rise in interest rates.

U.K. government debt declined, as investors factored in the possibility of a sooner-than-expected rate rise. The yield on 10-year bonds, which rises as prices fall, climbed 0.05 percentage point to 2.64%.

Even so, the strength of the labor market is very unlikely to trigger immediate action from the central bank. In March, BOE Governor Mark Carney backed away from his focus on the unemployment rate, saying rate setters have started looking at a broader range of labor market and other economic indicators.

In corporate news, shares in Credit Suisse Group AG fell after the Swiss bank delivered a disappointing profit figure for the first quarter of 859 million Swiss francs ($975.47 million), down from the 1.3 billion francs for the year-earlier period.

Tesco PLC shares rose despite the U.K. retailer posting its second consecutive fall in full-year profit. For the year to Feb. 22, Tesco's trading profit--which excludes property gains or losses--fell to GBP3.31 billion ($5.54 billion) from GBP3.45 billion a year earlier, on sales that were largely flat at GBP70.89 billion

Write to Tommy Stubbington at tommy.stubbington@wsj.com and Clare Connaghan at clare.connaghan@wsj.com