* FTSEurofirst 300 and Euro STOXX 50 up around 1 pct
* Stock markets extend ECB-inspired rally
* Drop in euro buoys sectors such as carmakers
* Gjensidige surges after profits beat forecasts
* TalkTalk slumps after cyber attack on website
By Sudip Kar-Gupta
LONDON, Oct 23 (Reuters) - Carmakers were among the best performing European shares on Friday as equity markets extended a rally from the previous day, with investors speculating there could be further monetary support from the European Central Bank (ECB).
The pan-European FTSEurofirst 300 index rose 1 percent, building on a 2.1 percent gain in the previous session, while the euro zone's blue-chip Euro STOXX 50 index also advanced 1.2 percent.
The STOXX Europe 600 Automobiles Index rose 2.2 percent to outperform other equity sectors.
The shares of carmakers benefited from a drop in the euro on the prospect of more monetary stimulus from the ECB, since a weaker euro typically makes European cars more affordable for overseas buyers.
Germany's DAX rose 1.4 percent, helped by a rise in the shares of carmakers such as Daimler and BMW .
"The DAX is a big runner today, as it typically performs well on euro weakness," said Hantec Markets' analyst Richard Perry.
The ECB kept interest rates unchanged at a record low on Thursday. It also left the key parameters of its quantitative easing (QE) scheme unchanged but said it would re-examine the policy at its meeting in December.
ECB chief Mario Draghi said falling inflation expectations, driven in part by lower than expected demand for oil, had led it to consider a wide variety of possible measures, including a deposit rate cut, to shore up inflation.
European stocks were also propped up by some solid earnings updates.
Shares in Norwegian insurer Gjensidige surged 12 percent after the company reported third-quarter profits ahead of market expectations.
French luxury goods group Kering also rose 6.6 percent after the company reported a dip in sales that was not as bad as some analysts had feared.
However, Ericsson fell 4.3 percent after its third-quarter revenue and profits missed market expectations, while shares in British broadband supplier TalkTalk slumped nearly 10 percent after a cyber attack on its website.
Nevertheless, most European third-quarter results so far have beaten or met expectations.
According to data from Thomson Reuters StarMine, 64 percent of companies on the European STOXX 600 index have posted earnings this quarter that have beaten or met market forecasts.
Today's European research round-up
Editing by Keith Weir