* NSE index rises 1.1 pct, BSE index up 1.3 pct
* Better monsoon forecast, earnings recovery aid sentiment
* L&T jumps 11 pct to 7-month high after robust Q4
May 26 (Reuters) - Indian shares rose more than 1 percent on Thursday, heading for their third session of gains, as Larsen & Toubro surged after upbeat March-quarter results, raising hopes about the domestic economy.
Improving earnings have raised optimism at a time when investors are betting monsoon rains will be stronger than average, boosting the outlook for rural demand.
Private weather forecaster Skymet said on Tuesday monsoon rains are expected to be 109 percent above the long-term average, compared with its earlier estimate of 105 percent.
"Monsoon is one major positive sentiment driver and global markets are also looking calm," said Rikesh Parikh, vice-president of equities at Motilal Oswal Securities.
"Also, the results season is on the verge of getting over and so far we have not seen any negative surprises. In fact, earnings are a tad better than market estimates and this comes after some four-five quarters of dull performances."
Mirroring the optimism, foreign investors have bought Indian shares worth a net $44.18 million so far this month, taking this year's inflows to $1.84 billion.
Analysts, however, warned that the markets could turn volatile later in the day ahead of the expiry of May derivative contracts.
The broader NSE index was 1.1 percent higher at 8,022.80 as of 0832 GMT, while the benchmark BSE index was up 1.31 percent at 26,221.27.
Larsen & Toubro jumped as much as 12.6 percent to its highest since October 2015, after the industrial major posted an upbeat 19 percent rise in fourth-quarter profit and said it expects orders to increase 15 percent in the year to March 2017.
Bajaj Auto rose as much as 1.7 percent after the two-wheeler maker on Wednesday reported a 29 percent rise in its March-quarter net profit.
However, Aditya Birla Fashion and Retail, famous for its brands such as Van Heusen and Pantaloons, fell as much as 6.8 percent to its lowest since March 30, after March-quarter loss widened to 1.1 billion rupees. (Reporting by Aastha Agnihotri in Bengaluru; Editing by Subhranshu Sahu)