By Ben Hirschler

LONDON (Reuters) - GlaxoSmithKline Plc (GSK.L: Quote, Profile, Research) profits fell 5 percent in the first quarter, hit by tumbling sales of diabetes drug Avandia and generic competition to other products, the world's second biggest drugmaker said.

The decline was less than analysts had feared, helped by strong sales of over-the-counter remedies, which offset the decline in pharmaceuticals.

Jean-Pierre Garnier, who retires next month, said on Wednesday it was an "honourable" performance, given a safety scare over Avandia that had prompted many patients and doctors to stop using the medicine.

Operating profit was 2.05 billion pounds ($4.1 billion) on sales up 2 percent at 5.69 billion, equivalent to underlying "business performance" EPS of 25.6 pence. The median forecast from 13 analysts polled by Reuters Estimates had been for 24.5p.

"Despite the generic attrition and the fallout from Avandia, they still managed to maintain the top-line performance, which is testament to the resilience of their broad product portfolio," said ING analyst David Seemungal.

Glaxo shares were up 1.4 percent at 11.17 pounds by 1420 GMT, outstripping the European drugs sector , which rose 0.9 percent.

Glaxo reiterated its cautious forecast that underlying earnings per share (EPS) would decline by a mid-single-digit percentage in 2008, in constant currencies.

The quarterly results highlight the challenges facing incoming chief executive Andrew Witty.