According to the Catan rules, you can only play one (1) development card on your turn.
You may build roads, settlements or cities and/or buy development
cards. You may also play one development card at any time during your
I would argue the rules say this is not legal. Quoting from rules found on Catan Website
However, you cannot give away cards, or trade matching resources (“trade” 3 ore for 1 ore, for example).
Your example in effect breaks both those rules. You are trading wood for wood which is illegal. The exact amounts don't matter, the example is 3 and 1 ore but ...
Converting a settler to a settlement is done as part of the movement phase, and can't be done during the build and trade phase.
This restriction to the movement phase can be missed in the English version of the rules because the sectioning is somewhat unclear;
luckily we can clarify things a little using the title in the German version of the rules: ...