Aug. 5 (Bloomberg) -- Brazilian stocks rose to the highest in year as commodity prices jumped and banks rallied on speculation they will be awarded rights to handle social security payments, bolstering their earnings prospects.

Banco Bradesco SA and Itau Unibanco Holding SA rose more than 1.7 percent on the prospect that processing more pension benefits may bolster profit margins. Redecard SA, the Brazilian processor of Mastercard Inc. payments, advanced the most in three weeks after Citigroup Inc. boosted its earnings forecast for the company on its “more upbeat” second-half outlook. Cia. Siderurgica Nacional SA paced gains for steelmakers as metal prices advanced.

“The domestic economy is really strong,” said Guilherme Sand, who helps manage the equivalent of $250 million at Solidus Corretora in Porto Alegre, Brazil. “There’s also really low rates around the world so people are searching for returns in Brazil and other emerging markets.”

The Bovespa index gained 0.6 percent to 56,384.08, the highest since Aug. 8. The BM&FBovespa Small Cap index added 0.9 percent to 868.97.

In other Latin American markets, Mexico’s Bolsa rose 0.8 percent and Chile’s Ipsa climbed 0.3 percent.

Itau led the rally for Brazilian banks, gaining 2 percent to 34.99 reais. Brazil’s largest bank won a bid to handle INSS pension payments in the Rio de Janeiro countryside after offering to pay 1.72 reais per benefit, said an INSS press official. The region has about 16,645 new benefits a month.

Bradesco added 1.8 percent to 30.35 reais. Bradesco was among 10 banks that bid in an auction today in Brasilia for the right to disburse the government’s social security to recent retirees for a term of 20 years as lenders seek more clients to compensate for a decline in profitability.

‘Valuable Asset’

“It’s a valuable asset as the banks will have access to a large amount of data,” said Persio Nogueira, an analyst with Planner Corretora de Valores in Sao Paulo. “With interest rates coming down, banks need to gain scale to maintain margins. This is a way to boost the number of clients.”

Commodities rose, sending the Reuters Jefferies Commodities index up 0.5 percent for a fifth day. Copper rose for a fifth day and crude oil climbed to a seven-week high.

CSN gained 1.8 percent to 49.45 reais.

Redecard jumped 4.4 percent to 28.85 reais. Citigroup analyst Daniel Abut raised Redecard’s profit estimate 5.8 percent for this year to 2.08 reais a share and 5.9 percent to 2.24 reais for 2010. He boosted Redecard’s 12-month share-price forecast 5.7 percent to 37 reais.

The New York-based analyst cited higher prepayment revenue, rising growth in credit and debit card transaction volume and lower operating expenses for the increase in earnings estimates.

The Bovespa has risen 50 percent this year on speculation a rebound in commodity prices and falling rates will bolster growth in Latin America’s largest economy.

The rally this year has pushed the Bovespa’s valuations up to 23.23 times reported earnings, a five-year high and more expensive than the average 17.59 price-to-earnings ratio of emerging market stocks tracked by the MSCI Emerging Market index, according to Bloomberg data.

In Mexico, the Bolsa climbed to the highest since July 2008, led by banks. Grupo Financiero Banorte SAB, Mexico’s biggest publicly traded lender, gained 3.6 percent to 34.32 pesos after global financial stocks rallied and analysts said the shares were cheap compared with rivals in Latin America.

Argentina’s Merval rose 1.6 percent, Peru’s Lima General dropped 1.3 percent and Colombia’s IGBC slipped 0.5 percent.

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

Last Updated: August 5, 2009 16:48 EDT