Aug. 24 (Bloomberg) -- Brazilian stocks rose, sending the Bovespa index to the highest level in a year, on advances in commodity prices and improving economic growth forecasts.

Vale SA, the world’s biggest iron ore producer, climbed 1.2 percent after copper led industrial metals higher. Porto Seguro SA rallied the most in 10 months after Itau Unibanco Holding SA, said it reached an agreement with the insurer to merge the companies’ home and car insurance operations. Petroleo Brasileiro SA sank 0.7 percent, limiting gains in the Bovespa index, after BG Group Plc failed to find hydrocarbons at its Corcovado-2 well, a concession partially owned by the Brazilian state-controlled oil company known as Petrobras.

“Commodities and equity markets will probably keep surpassing recent highs, whether they have a short-term pullback, the trend is still upward,” said Alvaro Bandeira, director of Rio de Janeiro-based Agora Corretora, Brazil’s second-biggest brokerage. “Brazil is emerging faster than most as the world economy recovers.”

The Bovespa index climbed 0.1 percent to 57,775.37, the highest level since July 31, 2008. Almost two stocks rose on the index for every one that fell. The BM&FBovespa Small Cap index added 0.2 percent to 906.31.

Mexico’s Bolsa index declined 1.1 percent, the most among the 89 global indexes tracked by Bloomberg, after regulators relieved pension funds from having to buy shares of companies that rarely trade. Chile’s Ipsa retreated 0.9 percent and the MSCI Emerging Markets Index rallied 1.7 percent.

Commodities prices advanced 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 Reuters/Jefferies CRB Index of 19 raw materials added 0.8 percent.

Brazil Economy

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. Inflation, as measured by the country’s benchmark IPCA index, will slow to 4.32 percent by year-end and to 4.30 percent next year, the same survey shows.

Vale rose 41 cents to 33.60 reais. Investors should buy shares of the miner while simultaneously betting on declines for Usinas Siderurgicas de Minas Gerais SA because increased supply may drive down steel prices, according to Itau Unibanco.

Vale also trades at a discount to Usiminas on price relative to earnings, meaning the so-called pair trade may reap a profit whether steel prices fall or not, wrote Itau equity strategist Carlos Constantini in a note to clients.

Usiminas fell 2 percent.

Cosan, Porto Seguro

Cosan SA Industria & Comercio led gains on the Bovespa, increasing 3.4 percent to 19.42 reais. The world’s biggest sugar-cane processor may report “strong” earnings growth in the next two years after prices for the sweetener surged, Citigroup Inc. said.

Porto Seguro gained 9.4 percent to 17.50 reais after Itau said it reached an agreement with the insurer to merge the companies’ home and car insurance operations. Itau jumped 0.8 percent to 34.51 reais.

“It seems a positive agreement for both sides,” said Joao Pedro Brugger, an analyst at Leme Investimentos in Florianopolis, Brazil.

Petrobras fell 0.7 percent to 33.40 reais, reversing earlier gains. Signs of gas seen during early drilling were not confirmed by later tests, Reading, England-based BG said in an e-mailed statement today. BG said it will provide an update after completing work on its Corcovado-1 well.

Mexican Stocks

The well is one of two that BG, along with partner Petrobras, is drilling on the Corcovado structure. The partners discovered oil in the Corcovado-1 field in the Santos Basin, located off the coast of the southeastern state of Sao Paulo, earlier this year.

The Bovespa has jumped 54 percent this year on speculation a rebound in commodity prices and record-low interest rates will bolster growth in Latin America’s largest economy. The rally pushed its price to 24.03 times reported earnings, near a five- year high and higher the 18.39 price-to-earnings ratio of the MSCI Emerging Markets Index, according to Bloomberg data.

Grupo Elektra SA, the Mexican electronics retailer owned by billionaire Ricardo Salinas, fell the most in a decade after regulators relieved pension funds from having to buy shares of companies that rarely trade.

Mexican pension fund regulator Consar said Aug. 21 it increased the official market weights for pension funds to percentage points from 1 percentage point. That means Afore won’t have to buy smaller stocks and companies that have expensive valuations such as Elektra, according to analysts Credit Suisse Group AG and Bulltick Capital Markets.

Elektra plunged 15 percent to 546.48 pesos, the most since September 1998. The stock trades at 64.6 times estimated earnings, compared with the Bolsa’s 15.8 times, according to data compiled by Bloomberg.

To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net

Last Updated: August 24, 2009 16:46 EDT