Sao Paulo - Banco Itau Holding Financeira SA agreed to acquire Uniao de Bancos Brasileiros SA on Monday, creating Brazil's biggest bank.

The Brazilian government applauded the merger and said it would make the country's financial system stronger.

"That new bank is set to become one of the largest financial institutions in the world," said Finance Minister Guido Mantega. He described the merger as "an important event, because they are two traditional, solid banks that will become even more solid."

According to a statement from the banks made public Monday in Sao Paulo, the merger is set to create "the largest private financial group in the southern hemisphere" and among the 20 largest in the world.

"It is a financial institution with the capacity to compete in the international stage with the world's great banks," said a statement issued by Itausa and Unibanco Holdings, which control both banks.

A report released Monday by consulting firm Economatica said that the new bank, Itau Unibanco, will have total assets worth 324 billion dollars, making it the ninth-largest in the Americas.

Together, Itau and Unibanco have 4,800 offices in Brazil, which is about 18 per cent of the country's bank network. They provide jobs for an estimated 80,000 employees - close to 20 per cent of the jobs provided in the sector.

The banks' statement acknowledged that the merger comes "at a time of great changes and opportunities in the world, particularly in the financial sector.

"The new bank gets consolidated in a setting that finds Brazil and its financial system in a privileged position, with huge possibilities for improving even further their relative position in the global setting," the statement said.

Although negotiations started 15 months back, Monday's announcement of the deal caught the financial markets by surprise.

Less than an hour after markets opened, Itau's shares were up by 14.39 per cent, while Unibanco shares gained 12.88 per cent.

Analyst Carlos Alberto Sardenberg, of TV channel GloboNews, said the deal makes the Brazilian financial system stronger in light of the current global financial crisis.

Finance specialist Miriam Leitao said the country's financial system, "which is already solid, becomes even more solid" with the merger.

Unibanco president Pedro Moreira Salles will head the board of the new bank, while Itau owner Roberto Egydio Setubal will be its CEO. (dpa)