COLOMBO Aug 21 Sri Lanka stocks hovered around three-year highs on Thursday, led by financials due to lower interest rates, but analysts said increasing speculative trading in fundamentally weak shares could impede the healthy growth the index has had this year.
The main stock index ended up 0.07 percent, or 4.78 points, at 7,004.75, its highest close since Aug. 18, 2011.
The index has gained 18.4 percent so far this year.
"Shares with weak fundamentals are also moving up from this week. If this set of stocks gathers momentum, it could be attractive for retail investors," Babushka Samarasinghe, the COO at Soft logic Stockbrokers, told Reuters.
"It could sharply increase the market risk as in the past," he said, referring to the index plummeting more than 20 percent after it hit a record peak in February 2011.
Shares of investment firm and broker Taprobane Holdings jumped 66.7 percent to 4.50 rupees in heavy volume which stockbrokers cited as a speculative move, while market heavyweight John Keells Holdings gained 1.51 percent to 248.70 rupees.
Thursday's turnover was 1.47 billion rupees ($11.3 million), higher than this year's daily average of 1.19 billion rupees.
The bourse saw net foreign inflows of 88.1 million rupees on Thursday, extending the year-to-date inflows to 7.57 billion rupees.
(1 US dollar = 130.2000 Sri Lanka rupee) (Reporting By Shihar Aneez; Editing by Prateek Chatterjee)