COLOMBO, July 3 Sri Lankan stocks hit their highest level in more than 13 months on Thursday, helped by foreign buying in top lender Commercial Bank of Ceylon , while talks of a U.S.-based fund acquiring a stake in conglomerate Hemas Holdings boosted sentiment.
The main stock index ended higher 0.54 percent, or 34.76 points, at 6,467.28, its highest level since May 23, 2013.
Dealers said a U.S.-based fund bought a 6.5 percent stake in Hemas Holdings on Wednesday.
"Foreign buying is strong and we see now others are also coming to the market to buy big quantities," a stockbroker said on condition of anonymity.
Analysts said foreigners have been buying risky assets because they see values in them, while falling yield in fixed assets is gradually prompting local investors to shift their funds to equities.
Foreign investors were net buyers for an eighth straight session on Thursday, buying 265.9 million rupees of stocks during the day and extending foreign inflows this year to 9.2 billion rupees.
Turnover was 1.51 billion rupees ($11.59 million), more than this year's daily average of around 1 billion rupees.
Shares of Commercial Bank of Ceylon jumped 3.41 percent to 148.60 rupees, while Hemas Holdings rose 1.1 percent to 46 rupees.
Brokers said investors are bullish about the market after they witnessed large state funds actively traded shares on Wednesday.
Analysts said foreign buying could continue due to lower inflation after government data showed annual inflation eased to 2.8 percent in June, its lowest since February 2012, down from 3.2 percent a month earlier.
Yields on treasury bills edged down further at a weekly auction on Wednesday.
However, analysts said investors are concerned over the recent ethnic violence and possible implications of a government spokesman saying Sri Lanka bought Iranian crude via third parties.
The market has been on a rising trend since late February due to continued foreign buying and lower interest rates. ($1 = 130.2300 Sri Lankan Rupees) (Reporting by Shihar Aneez; Editing by Subhranshu Sahu)