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COLOMBO, Aug 11 (Reuters) - Sri Lankan stocks gained for the fifth straight session on Monday and hovered near a three-year closing high as hopes for a policy rate cut this week and a further fall in interest rates boosted buying, stockbrokers said.
Better earnings and continued foreign buying also have boosted the sentiment.
The main stock index rose 0.36 percent, or 24.69 points to 6,942.92, its highest close since Sept. 12, 2011. It has risen 17.4 percent so far this year.
"The confidence of local investors is gradually increasing as corporate earnings released so far are not too bad," said a stockbroker requesting not to be identified.
Stockbrokers said investors had "no option" but to buy into stocks due to low interest rates as the market was expecting another rate cut on Friday.
Central bank chief Ajith Nivard Cabraal on Thursday said there was a greater chance of a cut, rather than an increase, 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.
Turnover was 1.15 billion rupees ($8.84 million), compared with a daily average this year of about 1.11 billion rupees.
Foreign investors bought a net 90.9 million rupees worth of shares on Monday, extending the year-to-date net foreign inflow to 12.12 billion rupees.
The gain on Monday was led by Ceylon Theatres Plc which rose 7.68 percent to 159.90 rupees. Dialog Axiata Plc , gained 1.85 percent to 11 rupees.
Conglomerate John Keells Holdings Plc edged up 0.13 percent to 239.50 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 = 130.1500 Sri Lankan rupee) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Robert Birsel)