(Corrects the origin of the company in paragraph 11 to Canada, not Japan)
COLOMBO, July 31 (Reuters) - Sri Lankan stocks rose for a fourth straight session on Thursday to their near three-year closing high on expectation of strong corporate earnings, while declining interest rates and continued foreign buying also buoyed sentiment.
The main stock index ended 0.18 percent, or 12.06 points, firmer at 6,813.90, its highest close since Sept. 20, 2011. It rose 6.82 percent in July, extending the year-to date gain to 15.24 percent.
"Earning hopes are still driving the market. Lower interest rates and foreign buying also help," a stockbroker said on condition of anonymity.
"We still do not see any overheating because there is holding capacity and healthy credit in the system."
Brokers said the market expects better earnings for the June quarter after market heavyweight and bellwether John Keells Holdings' upbeat results.
Lower interest rates have prompted local investors to buy shares and move away from unattractive fixed assets, analysts said. Yields on treasury bills edged down further by 7-10 basis points at a weekly auction on Wednesday.
The International Monetary Fund urged Sri Lanka on Wednesday to keep key interest rates on hold for the near term and said a cautious approach is warranted.
Turnover was 1.05 billion rupees ($8.06 million), around this year's daily average of about 1.09 billion rupees.
Foreign investors were net buyers of 112.7 million rupees worth of shares, extending the year-to-date net foreign inflow in shares to around 11 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.
Gains were led by insurance firm Union Assurance, which jumped 11.54 percent to 145 rupees after Canadian firm Fairfax Financial Holdings Limited announced the signing of a share purchase agreement to acquire 78 percent of the company. ($1 = 130.2000 Sri Lankan Rupees) (Reporting by Shihar Aneez; Editing by Subhranshu Sahu)