NEW YORK (Bloomberg) — Hedge funds rose 1.5 percent 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 percent last month and 6.8 percent 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 percent on average, helped by a 7.9 percent 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 percent to lift its return in 2010 to 3.7 percent.