(Bloomberg News) Hedge funds rose 1.5% in October, reaching the highest level in more than two years as global equity markets rallied, according to data compiled by Bloomberg.

The Bloomberg aggregate hedge fund index increased to 117.13 last month, the highest level since August 2008. The index peaked at 130.38 in July 2007. Long-short equity funds, whose managers buy stocks likely to rise and sell short those they expect to fall, gained 2.1% last month and 6.8% this year.

"October was a good month because the equity markets did well," said Don Steinbrugge, managing partner of Agecroft Partners LLC, a Richmond, Virginia-based consulting firm that advises hedge funds and investors. "The average hedge fund is going to have some correlation to how long-only benchmarks do."

The October gains bring returns this year to 4.2% on average, helped by a 7.9% rally in global stocks. U.S. stocks today rose briefly above their highest close in more than two years, as investors speculated the Federal Reserve will succeed in stoking growth and corporate earnings improved.

The Bloomberg hedge fund index is weighted by market capitalization and tracks 2,588 funds, 1,158 of which have so far reported returns for last month.

The BAIF CTA/Managed Futures Index, comprising funds that invest mainly in commodities, options and futures, had the biggest October gain of any strategy, rising 2.9% to lift its return in 2010 to 3.7%.

'Driven by Trends'

"CTAs [commodity trading advisors] are driven by trends, and when there are strong trends across multiple markets they tend to do well," Steinbrugge said. "It was a number of commodities tied to food, such as corn, soy, wheat and coffee, a falling dollar, falling natural gas, gold was up, fixed income was up on both the long and short ends."

Macro funds, whose managers seek to profit from global themes or trends, rose 0.8% in October and 2.4% this year. Multistrategy hedge funds returned 1.1% last month to bring gains for the year to 2.7%.

Mortgage-backed arbitrage hedge funds, which aim to profit from inefficiencies in the pricing of mortgage-backed securities, rose 1% to bring gains for the year to 15%, the most of any strategy. Funds that aim to capitalize on mergers increased 1.1% in October and this year.