Sri Lankan stocks at near 3-yr closing high on low rates

COLOMBO Wed Aug 6, 2014 7:51am EDT

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COLOMBO Aug 6 (Reuters) - Sri Lankan stocks touched a near three-year closing high on Wednesday led by banks on hopes the ongoing financial sector consolidation would help boost future earnings amid low interest rates; continued buying by foreign investors also helped sentiment.

The main stock index ended 0.26 percent, or 17.84 points, firmer at 6,833.26, its highest close since September 16, 2011. It rose 6.82 percent in July and has been up 15.57 percent so far in the year.

"Retail interest was mainly in the financial sector with mergers and acquisitions taking place due to the financial sector consolidation," said Dimantha Mathew, research manager at First Capital Equities (pvt) Ltd.

"There is an increasing interest on the demand side (for stocks) simply because people are searching for avenues to invest with interest rates coming down."

Yields in treasury bills fell 8-13 basis points at a weekly auction on Wednesday with the one-year T-bill yield falling below the central bank's repurchase rate or standing deposit facility rate.

Hopes over strong earnings, declining interest rates and continued buying by foreign investors have helped boost interest in risky assets in the $22 billion-worth stock market.

Ceylinco Insurance Plc rose 1.54 percent to 1,360.70 rupees and Union Assurance Plc rose 10.32 percent to 174.20 rupees. Shares in the biggest listed lender Commercial Bank of Ceylon Plc rose 0.64 percent to 142.40 rupees.

Turnover was 1.39 billion rupees ($10.68 million), more than this year's daily average of about 1.01 billion rupees.

Foreign investors bought a net 223.3 million rupees worth of shares on Wednesday, extending the year-to-date net foreign inflow to 11.26 billion rupees.

The index has been in the overbought region since July 3, as local investors moved funds from fixed income to riskier assets because of low interest rates and foreign buying.

Lower interest rates have prompted local investors to buy shares and move away from unattractive fixed assets. (1 US dollar = 130.1800 Sri Lankan rupee) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath)

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