Concerns over Brazilian President Michel Temer's ability to pass the controversial measure had spooked local markets following a smaller-than-expected show of support for the center-right president in a recent vote.
But efforts by Temer to appease Brazilian lawmakers have rekindled expectations that the bill, seen as critical to boosting long-term growth, will be approved, even if the government needs to water it down to do so.
Temer tapped an ally of House Speaker Rodrigo Maia as minister in a bid to garner more lawmakers' support, three sources told Reuters on Monday, further assuaging investor worries.
"Signs of common ground between Temer and Maia suggest some sort of political compromise and real chances that the pension reform is approved," analysts at Lerosa Investimentos brokerage wrote in a client note.
The benchmark Bovespa stock index rose 1.58 percent, with blue-chip shares such as lender Ita? Unibanco Holding SA and miner Vale SA posting gains.
In Mexico, the peso strengthened 1.06 percent, as the fifth round of talks to repurpose the North American Free Trade Agreement (NAFTA) drew to a close with major differences yet to be resolved, casting doubt on whether a deal could be reached by the end of March 2018 as planned.
The 1994 agreement underpins much of the more than $1 trillion in annual trilateral trade between the United States, Mexico and Canada, but Washington's repeated threats to walk away from the pact unless it is reworked in the United States' favor have spooked markets.
Canada and Mexico object to a series of contentious demands the United States unveiled during the fourth round last month and the three countries made little progress in Mexico City.
The peso traded at 18.7905 pesos per dollar on Tuesday afternoon.