INTERVIEW-UPDATE 1-Sri Lanka shrugs off Galleon divestment

* Chief regulator: President will win 2010 elections

* Chief regulator: Galleon’s divestment “insignificant”

* Chief regulator: Galleon holds 1.2 pct of Colombo’s mkt cap (Adds details, quotes, byline)

SINGAPORE, Nov 25 (Reuters) - Investors in Sri Lanka's stock market .CSE should not be worried about political uncertainty ahead of the 2010 elections or hedge fund Galleon's divestment of assets in the island nation, its chief regulator said on Wednesday.

“They don’t need to worry because for sure the president is going to win,” Udayasri Kariyawasam, chairman of the Securities and Exchange Commission, told Reuters in Singapore.

Investor confidence in the south Asian nation’s bourse has been on the decline after the government on Oct. 13 announced it will hold elections by April. The market has fallen nearly 9 pct since then.

Kariyawasam, a close confidant of President Mahinda Rajapaksa who has taken the SEC post since March, assured investors that there would be a continuity of policies and reform implemented by Rajapaksa since 2005 as he is expected to win again.

“I don’t think there should be any panic from the investor’s point of view,” he said in an interview in Singapore where he took part in a Sri Lankan investment roadshow.

Rajapaksa called a presidential poll for mid-January, amid speculation that General Sarath Fonseka, who oversaw the end of a 25-year war, may challenge him. [ID:nSP498096]

Fonseka, who stepped down last week, is being considered as the common candidate by two main opposition parties, though he has yet to make a formal announcement on entering politics and challenge his former commander-in-chief. [ID:nCOL362269]

Investors were waiting to see the impact of divestment by Galleon hedge fund after its founder Raj Rajaratnam was last month charged with insider trading in the U.S. [ID:nN05365147], analysts said.

But Kariyawasam downplayed the significance of Rajaratnam and his fund to the Colombo bourse, saying he was “only another investor.”

“Rajaratnam’s exposure to the market is about 12 billion rupees while our market capitalisation is 1 trillion rupee ($9 billion)... Even he sells his entire stake, there won’t be any negative impact on the market, Kariyawasam said.

Rajaratnam started selling his shares in Commercial Bank of Ceylon COMB.CM, Sri Lanka's top private lender, since last week, and so far there had been no "big difference," he said.

Kariyawasam declined to say what other stocks Rajaratnam had held or sold.

“He has been in the market quite a long time, even before he was taken into custody... He started selling since last January, but nobody was concerned. Once he was taken into custody, people were looking at it,” he said. (Additional reporting by Shihar Aneez in Colombo; Editing by David Holmes) ((; +65 6403 5665; Reuters Messaging: