UPDATE 1-Argentina Merval stock index grows to 23 companies in fourth quarter

(Adds details on sector composition, index performance, background on Argentina)

BUENOS AIRES, Sept 30 (Reuters) - Argentina’s leading Merval stock index will grow to include 23 companies in the fourth quarter of 2016, up from 15 currently, the stock exchange Mercado de Valores de Buenos Aires said on Friday.

The index’s composition is updated every three months based on which companies were most liquid in the prior quarter. It will be the first time since the fourth quarter of 2008 that the index will have more than 20 companies, the exchange said.

The increase will come as welcome news to investors looking for opportunities in Argentina after center-right President Mauricio Macri was elected late last year. While they cheered his market-friendly reforms, such as ending capital controls, many were turned off by how few companies the Merval had listed.

They were also turned off by the index’s heavy composition of utilities, which are closely regulated, and banks, which are struggling with rampant inflation seen as high as 40 percent in Argentina this year. Oil companies like state-owned YPF SA also have a strong influence the index.

Next quarter, companies from the telecommunications, construction, paper and pulp, real estate and electricity generation sectors will join the index.

The Merval has rallied 43 percent this year after a 36-percent gain last year, and set new record highs six times in September, most recently on Thursday. (Reporting by Jorge Otoala; Editing by Sandra Maler)