COLOMBO Aug 14 (Reuters) - Sri Lankan stocks broke through the key psychological barrier of 7,000 points on Thursday to end near a three-year closing high as declining interest rates drove investors into risky assets and foreign inflows helped boost sentiment.
The main stock index, which hit 7,018.72 during intra-day trade, ended up 0.27 percent, or 18.95 points firmer at 6,973.09, its highest close since Sept. 9, 2011.
It has risen 17.93 percent so far this year.
Stockbrokers, however, expect a correction in the overbought market, even as the index gained for the eighth straight session.
Turnover was 2.02 billion rupees ($15.52 million), nearly double this year's daily average of 1.12 billion rupees.
Analysts said hopes of a policy rate cut on Friday and a further fall in interest rates helped boost turnover. Yields in government treasury bills fell 9 to 14 basis points at a weekly auction on Wednesday.
"There is positivity. The market is supported by low interest rates and good earnings," said Reshan Kurukulasuriya, chief operating officer of Richard Peiris Securities.
"Now, the foreigners are looking at Sri Lanka. There is a premium for banking stocks and some blue chips. There should be a correction going in to September, but it'll be flat..."
Better corporate earnings and continued foreign buying, too, have helped maintain positive sentiment.
The bourse saw net foreign inflow of 453 million rupees on Thursday, extending year-to-date net inflows to 12.67 billion rupees.
Union Bank of Colombo Plc on Thursday said it had agreed to sell a 70 percent stake to a subsidiary of TPG Capital Management LP for $113 million.
Ceylon Tobacco Company Plc, which led the gain in the overall index, rose 3.64 percent to 1,195.80 rupees, while Ceylon Cold Stores Plc gained 10.15 percent to 247.50 rupees. (1 US dollar=130.1600 Sri Lankan rupee) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath)