COLOMBO, July 22 Sri Lankan stocks hit a 34-month closing high on Tuesday, led by banking shares as local investors shifted funds from fixed income to riskier assets in view of the low interest rates, brokers said.
The main stock index ended up 0.59 percent, or 39.85 points, at 6,796.37, its highest close since Sept. 20, 2011.
"The market looks positive. If it continues to go up beyond 6,900 points, we may see a correction with profit-taking," said a stockbroker asking not to be named.
The share index has gained 6.55 percent so far this month.
Turnover was 1.42 billion rupees ($10.90 million), more than this year's daily average of about 1.09 billion rupees.
Foreign investors were net buyers of 213.1 million rupees worth of shares on Tuesday, extending the year-to-date net foreign inflow to 10 billion rupees in shares.
Biggest listed lender Commercial Bank of Ceylon Plc rose 2 percent to 144.90 rupees.
The market is on the rise because investors have few options in other instruments as yields of treasury bills and the central bank's key monetary policy rates have fallen to multi-year lows amid continued foreign buying.
Yields on treasury bills edged down further at a weekly auction on Wednesday.
The index is in the overbought region since July 3. It has risen 14.94 percent so far this year.
Lower interest rates have prompted local investors to buy shares and move away from unattractive fixed assets, analysts said.
Analysts said foreigners have been buying risky assets because they see value in them. ($1 = 130.2500 Sri Lankan Rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anupama Dwivedi)