Sri Lankan stocks at 3-wk high; rupee steady

* Institutional buying in blue chips pushes bourse up

* Thin foreign outflow

* Rupee steady; market awaits outcome of IMF talks

COLOMBO, June 14 (Reuters) - Sri Lankan stocks jumped 1.6 percent on Thursday to a more than three-week high on institutional buying of blue-chips stocks like John Keells Holdings PLC in an oversold market after the central bank kept policy rates steady.

The central bank held the key policy rates unchanged on Wednesday.

The main index rose 1.61 percent or 78.23 points to end at 4,923.02, its highest since May 28.

"The market's upward movement was quite overdue because it was oversold," Danushka Samarasinghe, research head at TKS Securities, told Reuters.

The market fell 10.8 percent in May due to economic and political worries. It has recovered 2 percent in June.

Market heavyweight and the top conglomerate John Keells Holdings gained 2.14 percent to 186 rupees, while top private lender Commercial Bank of Ceylon gained 0.4 percent to 100.90 rupees.

Analysts, however, said economic worries, in particular concern about rupee volatility, remained, resulting in thin trading volume. The day's turnover was 427.8 million rupees ($3.24 million), the highest since June 7, but less than the daily average of 943 million rupees this year.

Foreign investors were net sellers of 4.23 million rupees worth of shares.

The rupee ended barely changed at 132.00/132.10 against the dollar from Wednesday's close of 131.90/132.10. It hit an all time low of 133.60 on Tuesday on importer dollar demand.

On Thursday, Treasury Secretary P.B. Jayasundera told Reuters the rupee had hit its low and would stabilise around 125 per dollar in the medium term.

Analysts said currency dealers were waiting to see the outcome of an International Monetary Fund (IMF) mission meeting government and central bank officials for talks on the last tranche of a $2.6 billion loan.

The IMF, which has long pressed the central bank to allow flexibility in the rupee exchange rate, is expected to release the last tranche of the loan - about $420 million - if it is satisfied with economic performance.

The currency has depreciated 16.4 percent since Nov. 21, when the government allowed a 3 percent devaluation. ($1 = 132.0500 Sri Lanka rupees) (Reporting by Ranga Sirilal and Shihar Aneez)