COLOMBO, Aug 8 (Reuters) - Sri Lankan stocks rose to a near three-year closing high on Friday as hopes of a policy rate cut and further fall in interest rates led investors to snap up banking and diversified shares amid continued buying by foreign investors.
The main stock index edged up 0.15 percent, or 10.05 points to 6,918.23, its highest close since September 13, 2011. It has risen 17 percent so far this year.
"The market continued its run on low interest rates, good results and continued foreign buying," said a stockbroker requesting not to be named.
Foreign investors bought a net 346.6 million rupees worth of shares on Friday, extending the year-to-date net foreign inflow to 12.03 billion rupees.
Turnover was 1.58 billion rupees ($12.14 million), more than this year's daily average of about 1.11 billion rupees.
Stockbrokers said investors had "no option" but to buy into stocks due to low interest rates as the market is expecting another rate cut during the Aug. 15 policy rate announcement.
Central bank chief Ajith Nivard Cabraal on Thursday said there was a greater chance of a cut, rather than a hike, in key policy rates, a day after yields on one-year government debt fell, below the rate of 6.50 percent at which the central bank mops up liquidity from commercial banks.
Hopes over strong earnings, declining interest rates and continued buying by foreign investors have helped boost interest in risky assets in the $22 billion-worth stock market.
Gains were led by Distilleries Company of Sri Lanka Plc which rose 2.99 percent to 210.90 rupees a share while DFCC Bank rose 2.51 percent 175.40 rupees.
The index has been in the overbought region since July 3, as local investors moved funds from fixed income to riskier assets such as shares because of low interest rates and foreign buying. (1 US dollar = 130.1700 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath)