(Reuters) - Sri Lankan stocks rose for the sixth straight session on Tuesday to touch their highest in more than three years after the central bank effectively reduced its standing deposit facility rate to boost credit and economic growth.
Before the market opened, the central bank announced moves to make commercial banks lower their interest rates and increase lending to support an economy expected to grow 7.8 percent this year, while keeping its own policy lending rate unchanged.
The main stock index ended up 0.06 percent, or 4.23 points, at 7,260.64, its highest closing level since June 9, 2011.
"We expect a surge in activity due to declining interest rates," said Hussain Gani, deputy CEO at Softlogic Stockbrokers said. "I think there will be demand for fundamentally sound shares and we see an increase in buying using margin credit."
Stockbrokers said they expect the index to gain further, fuelled by the indirect rate cut.
The central bank also cut its year-end inflation projection to 3-4 percent from 4-5 percent due to a cut in energy prices on Sept. 16.
Sri Lanka is aiming for a higher economic growth of 8.2 percent and a lower fiscal deficit target of 4.4 percent of gross domestic product next year, a government document showed last week.
The stock index has gained 22.8 percent so far this year.
The bourse has been in an overbought region since July. The Relative Strength Index, a momentum indicator tracked by chartists, rose to 85.616 on Tuesday compared with Monday's 84.729, Thomson Reuters data showed.
Shares of Commercial Leasing and Finance Plc, which led the overall gains, rose 4.35 percent to 4.80 rupees, while Bukit Darah Plc gained 3.54 percent to 735.1 rupees.
Sri Lanka Telecom Plc added 1.92 percent to close at 53.20 rupees.
The day's turnover was 2.18 billion rupees ($16.7 million), well above this year's daily average of over 1.28 billion rupees.
Foreign investors were net sellers for the fist time in six sessions. They sold 305.33 million rupees worth of shares on Tuesday, but have been net buyers of 11.24 billion rupees in shares so far this year.
Before the market opened, the central bank announced moves to make commercial banks lower their interest rates and increase lending to support an economy expected to grow 7.8 percent this year, while keeping its own policy lending rate unchanged.
The main stock index ended up 0.06 percent, or 4.23 points, at 7,260.64, its highest closing level since June 9, 2011.
"We expect a surge in activity due to declining interest rates," said Hussain Gani, deputy CEO at Softlogic Stockbrokers said. "I think there will be demand for fundamentally sound shares and we see an increase in buying using margin credit."
Stockbrokers said they expect the index to gain further, fuelled by the indirect rate cut.
The central bank also cut its year-end inflation projection to 3-4 percent from 4-5 percent due to a cut in energy prices on Sept. 16.
Sri Lanka is aiming for a higher economic growth of 8.2 percent and a lower fiscal deficit target of 4.4 percent of gross domestic product next year, a government document showed last week.
The stock index has gained 22.8 percent so far this year.
The bourse has been in an overbought region since July. The Relative Strength Index, a momentum indicator tracked by chartists, rose to 85.616 on Tuesday compared with Monday's 84.729, Thomson Reuters data showed.
Shares of Commercial Leasing and Finance Plc, which led the overall gains, rose 4.35 percent to 4.80 rupees, while Bukit Darah Plc gained 3.54 percent to 735.1 rupees.
Sri Lanka Telecom Plc added 1.92 percent to close at 53.20 rupees.
The day's turnover was 2.18 billion rupees ($16.7 million), well above this year's daily average of over 1.28 billion rupees.
Foreign investors were net sellers for the fist time in six sessions. They sold 305.33 million rupees worth of shares on Tuesday, but have been net buyers of 11.24 billion rupees in shares so far this year.
($1 = 130.2800 Sri Lankan rupee)
(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Prateek Chatterjee)
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