Aug. 24 (Bloomberg) -- Emerging-market stocks rose to the highest in three weeks as investor confidence in eastern Europe surged and higher metal prices lifted commodity producers.

The MSCI Emerging Markets Index added 1.9 percent to 861.37 at 5 p.m. in New York. Shares in Estonia had the biggest gain in 11 years, adding 13 percent, and Lithuanian equities surged 11 percent after Sweden’s TeliaSonera AB offered to buy out shareholders in its Baltic units, according to statements from the company. AS Eesti Telekom, Estonia’s biggest phone company, jumped 23 percent and TEO LT in Lithuania added 30 percent.

The 52 percent rally in emerging-market stocks this year is almost three times the increase in developed-economy shares and has pushed valuations to the highest level in nine years.

Positive economic data “provided some relief and triggered hopes of a recovery from the sharp contraction in activity seen since the end of last year,” analysts at Societe Generale SA wrote today in a research note. “The improvement is fragile, though, and heavily dependent on a recovery in global trade.”

Stocks in the MSCI Emerging Markets Index are trading at a price to earnings ratio of 18.37 times, the highest since 2000, Bloomberg data show. The MSCI World Index of developed stocks has added 18 percent this year and is trading at 25.3 times reported earnings.

Emerging-market stocks have the best “medium-term” growth prospects, with economic growth in developing economies set to outpace those of developed markets by three percentage points, UBS AG said.

Emerging-market economies will grow by 5.5 percent, compared with 2 percent for advanced nations, UBS strategist Jeffrey Palma said, reiterating his “overweight” allocation for emerging-market stocks.

Bovespa

In Latin America, Brazil’s Bovespa index added 0.1 percent on rising commodity prices and improving economic growth forecasts.

Brazil’s economy will expand 4 percent next year, faster than the 3.8 percent forecast a week ago, according to the median estimate in an Aug. 21 central bank survey of about 100 economists published today.

Vale SA, the world’s biggest iron ore miner, rose 1.2 percent after copper led industrial metals higher. Petroleo Brasileiro SA, the state-controlled oil company, slid 0.7 percent after BG Group Plc failed to find hydrocarbons at its Corcovado-2 well, a concession partially owned by Petrobras.

Oil, the biggest export from Mexico and Colombia, rose 0.1 percent to $73.97 in New York.

Mexico’s Bolsa dropped 1.1 percent.

Bernanke, Trichet

Industrial metals advanced rose around the world for a fifth day as leaders of the world’s biggest central banks buttressed confidence in the recovery. Federal Reserve Chairman Ben S. Bernanke and European Central Bank President Jean-Claude Trichet, speaking at the annual central bankers’ symposium in Jackson Hole, Wyoming, said the world economy is pulling out of recession.

The Philippine’s benchmark stock index advanced the most in seven months on speculation that the Southeast Asian nation avoided a recession in the second quarter and is poised for an economic recovery later this year.

The extra yield investors demand to own developing nations’ bonds instead of U.S. Treasuries widened three basis points to 3.67 percentage points, according to JPMorgan Chase & Co.’s EMBI+ Index. A basis point equals 0.01 percentage point.

To contact the reporters on this story: Laura Cochrane in London at lcochrane3@bloomberg.net; Lester Pimentel at lpimentel1@bloomberg.net

Last Updated: August 24, 2009 17:24 EDT