S.Lanka shares close flat after touching week low

COLOMBO Aug 11 (Reuters) - Poor earnings posted by Sri Lanka Telecom SLTL.CM drove the island nation's bourse .CSE to a one-week low on Tuesday before it recovered and closed flat on retail investor buying in thin trade.

Analysts and traders said still investors are concerned over low foreign buying and poor earnings.

The all-share index closed 0.09 percent or 2.15 points firmer at 2524.92, after reaching a one-week low of 2501.58 in early trade due to negative sentiment after Sri Lanka Telecom posted a 75 percent drop in its net profit for the June quarter.

"Sri Lanka Telecom results drove the market down with heavyweights like John Keells and Dialog also dropping," said Mohandas Thangarajah, a broker at First Guardian Equities.

Other analysts said retail investor buying helped the market to recover afterward.

Sri Lanka Telecom SLTL.CM fell 3.89 percent to 43.25 rupees calculated on a weighted average, while top conglomerate John Keells Holdings JKH.CM closed 0.56 percent down at 132.75 rupees a share, bourse data showed.

Top mobile phone operator Dialog Telekom DIAL.CM closed flat at 6 rupees, while milk product manufacturer Nestle Lanka NEST.CM surged 40.7 percent to 353.25 rupees, helping the bourse to recover overall.

The bourse is up around 68 percent so far this year and is one of Asia's best-performing markets.

It has surged 32.4 percent since the government declared victory in the war on May 18, but the rebound appears to have settled and the overall recovery puts the bourse at levels last seen in mid-June 2008.

Foreign buying was around a fifth of the overall turnover of 319.3 million rupees ($2.78 million). Last year's daily average volume was 464 million rupees.

Analysts say foreign buying will be the main factor that could boost the market further, after the end of the war and a $2.6 billion loan from International Monetary Fund (IMF) sparked local retail investor participation.

Shivantha Meepage, a research analyst at Acuity Stockbrokers, said foreigners are waiting to see a stable economy, rather than concern over exchange rate.

"It's hard to believe that foreigners have concerns over the exchange rate as they have invested in government securities," he said.

Post-war foreign investments in government securities has reached $270 million up to Monday, central bank data showed.

Central Bank Governor Ajith Nivard Cabraal on Monday said he was comfortable with the exchange rate and saw no reason to adjust it or stop preventing appreciation. [ID:nCOL428071]

The rupee LKR= ended flat at 114.90/95 a dollar as a state bank, which the central bank uses to direct the market, bought the dollar at 114.90 for the twelfth straight week.

Sri Lanka's trade deficit for the first half of 2009 narrowed 60 percent to $1.25 billion, with both exports and imports falling at slower rates in June, central bank data showed on Tuesday, signalling recovery in the economy. [ID:nCOL512812]

Sri Lanka on Tuesday accepted $190 million worth of bids for two-year Sri Lanka development bonds with a yield of six-month LIBOR plus 449.8 basis points, a central bank official said.

Sri Lanka is planning to issue $500 million of five-year dollar bonds, aiming for a coupon rate of around 7 percent, sources close to the deal told Reuters on Tuesday. [ID:nCOL60119]

The interbank lending rate or call money rate CLIBOR edged down to 9.211 percent from Monday's 9.255 percent.

For secondary market rates, please see <0#LKBMK=>. ($1=114.925 Sri Lankan Rupee) (Editing by Bryson Hull)