The IMF on Friday urged Sri Lanka to take steps to reduce its fiscal deficit and raise tax revenues to help improve its balance of payments.

The statement raises concerns over possible hikes in interest rates and taxes which might dent market sentiment further, analysts said, adding an IMF loan would help instil confidence among foreign investors in the long run.

The main stock index ended 0.05 percent weaker at 6,401.66, its lowest close since Feb. 1.

"Market is struggling with lack of buying pressure," said Dimantha Mathew, research manager at First Capital Equities (Pvt) Ltd. "People are not investing, mainly because of the economic concerns, and interest rates are also on the rise."

Turnover was 389.4 million rupees ($2.72 million), less than half this year's daily average of 810.2 million rupees.

The index has fallen 7.1 percent this year through Monday as foreign investors, unnerved by global concerns over China's economy, cut their exposure.

Concerns over sluggish economic growth in China, likely interest rate hike by the U.S. Federal Reserve and falling oil prices have forced some investors to sell risky assets.

Foreign investors sold a net 18.3 million rupees worth of shares on Monday, extending the year-to-date net foreign outflow to 277.6 million rupees.

Rise in local interest rates has been a concern and local stocks could come under further pressure, analysts said.

Yields on treasury bills rose between 7 and 23 basis points at a weekly auction last Tuesday with yields on 182-day and 364-day T-bills rising to more-than-two-year highs, signalling a further rise in market interest rates, which move in tandem with the yields.

Shares of Cargills (Ceylon) Plc fell 2.91 percent while Hemas Holdings Plc fell 2.30 percent. ($1 = 143.2000 Sri Lankan rupees)

(reuters.com)