Sri Lankan shares end steady in thin volume

COLOMBO, June 10 (Reuters) – Sri Lankan shares ended steady on Friday as positive sentiment after an IMF loan approval offset concerns over rising interest rates and foreign fund outflows.

Turnover was Rs275.1 million ($1.90 million), the lowest since March 19, and less than half of this year’s daily average of around Rs773.2 million.

The benchmark Colombo stock index ended 0.04 percent higher at 6,530.50. It posted a weekly gain of 0.17 percent, snapping three straight weeks of losses.

"Market is slowly moving up because of the IMF deal, but now the biggest issue is rising interest rates," said Dimantha Mathew, head of research at First Capital Equities (Pvt) Ltd.

"Most of the people are investing in long-term fixed income. That’s why turnover is low."

Treasury bill yields have risen between 16 and 36 basis points to near three-year highs in the last three weekly auctions through Wednesday despite the Central Bank leaving key policy rates steady for a third straight month on May 20.

Prime Minister Ranil Wickremesinghe told the parliament on Thursday that the government would take measures to abolish the Exchange Control Act and introduce the capital gain tax soon, without giving a timeframe.

The International Monetary Fund’s (IMF) executive board approved a three-year $1.5 billion loan to support Sri Lanka’s economic reforms agenda, the global lender said on Saturday.

Investors are, however, concerned about foreign outflows, with overseas investors offloading a net Rs5.72 billion worth of shares so far this year. Foreign investors were net buyers for the first time in five sessions on Friday, purchasing a net Rs13.7 million worth of shares.

Stockbrokers said a rise in interest rates could be detrimental to risky assets if they jumped beyond 12 percent. The average prime lending rate (AWPR) edged up 8 basis points to 10.23 percent in the week ended June 3.

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Ceylon Tobacco Company Plc rose 0.38 percent, while Sri Lanka Telecom Plc gained 1 percent.

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