Sri Lanka rupee at new low, foreign money leaves bourse

COLOMBO, March 31 (Reuters) - Sri Lanka's rupee hit a new life low on Tuesday on dollar demand from importers and investors cashing out shares to avoid an expected risk of rupee devaluation after an International Monetary Fund (IMF) loan comes through.

The bourse fell in thin trade with foreigners pulling out due to the rupee fall, brokers said.

The rupee <LKR=> closed at an all-time low of 115.80/116.00 a dollar, down 0.5 percent from Monday's 115.20/115.40. Its previous life low was 115.75/95 hit on Feb. 27 before the central bank intervened to keep it steady.

"This is a clear indication that the central bank has floated the rupee to fulfill a condition for the IMF loan," said a currency dealer. "Otherwise, why should it stay away now without intervention after protecting the rupee heavily since September?"

Nandalal Weerasinghe, the chief economist at the central bank, declined to comment except to say the bank has already said it is allowing greater flexibility in the exchange rate.

"The fall might be due to market demand and supply," he said.

The central bank is currently in negotiations with a team from the global lender in Colombo.

The rupee has fallen 6.81 percent since Oct. 30, after the central bank allowed depreciation to preserve dollars and enhance exporter competitiveness. It is down 2.5 percent so far in 2009.

The Colombo All-Share index .CSE edged down 0.4 percent or 6.53 points to 1638.06, driven largely by profit-taking on shares in top conglomerate John Keells Holdings JKH.CM

"Foreigners are seen selling John Keells shares and exiting the market due to rupee devaluation expectations," said Mohandas Thangarajah, a stockbroker at First Guardian Equities.

Currency dealers confirmed a foreign bank bought dollars from the market to facilitate a foreign sale of Keells.

Analysts said foreign investors might return to the bourse once the rupee settles to a market-driven level, devoid of central bank support.

Keells, which had risen 10.3 percent since March 25, closed down 2.71 percent at 62.75 rupees, calculated on a weighted average.

National Development Bank NDB.CM plummeted 8.25 percent to 89 rupees.

Turnover was 79.5 million rupees ($68,590), a fraction of last year's daily volume of 464 million rupees.

The interbank lending rate or call money rate CLIBOR closed flat at 11.220 percent from Monday's 11.222 percent.

For secondary market rates, please see <0#LKBMK=>. ($1=115.90 Sri Lankan rupees) (Editing by Bryson Hull)