S.Lankan shares up 1.4 pct as Dubai deal stars

COLOMBO, July 28 (Reuters) - Sri Lankan shares rose 1.41 percent on Monday to their highest close in more than a week, pushed up by the foreign buying of a majority stake in Associated Motorways AMW.CM, which boosted investor confidence.

Dubai-based engineering firm Al-Futtaim bought 71 percent of the Sri Lankan motor vehicle company, 20 percent previously held by John Keells Holdings JKH.CM and 51 percent by Associated Electrical Corporation AEC.CM, analysts said.

Associated Motorways is the sole agent for Nissan vehicles and Yamaha motorbikes in Sri Lanka. The shares were bought at 174.50 rupees each. See [ID:nCOL259149].

"This foreign buying boosted the market confidence," said Hussain Ghani, assistant director at Asia Securities. "Though the deal was block trading, foreign interest in the bourse gave much needed investor confidence."

The All-Share index .CSE closed 33.49 points firmer at 2,403.59, its highest close since July 18.

The bourse hit a near two-year closing low on Tuesday, and is still down 5.4 percent in 2008.

The market has been hit by worries about the civil war and high inflation and interest rates. Investors expect the difficult economic conditions will weaken corporate earnings.

Shares in Associated Motorways closed up 2.65 percent at 174.50 rupees a share calculated on a weighted average. It accounted for around 94 percent of the day's turnover of 7.74 billion rupees ($72 million), well over last year's daily average of 400 million rupees.

Diversified conglomerate John Keells Holdings JKH.CM, which in early trade said it would have a capital gain of around 1.03 billion rupees from divesting its 20-percent stake in Associated Motorways, rose 1.5 percent to 101.50 rupees.

It fell 4.84 percent on Tuesday to its lowest close in 2-½ years, as investors dumped the shares after the Supreme Court nullified a five-year tax concession for one of its subsidiaries.

Associated Electrical Corp fell 2.91 percent to 1,599.75 rupees a share.

Traders said despite a capital gain of around 4 billion rupees from the stake sale, shares fell as the company did not announce a better dividend to shareholders.

"Investors were expecting the company to include the capital gain in the dividend payment. However, the company announced dividend of 9 rupees a share, a day before the stake sale," Ghani said.

Market heavyweight Dialog Telekom DIAL.CM closed 1.89 percent firmer at 13.50 rupees a share, while Sri Lanka's top fixed-line phone operator Sri Lanka Telecom SLTL.CM rose 4.65 percent to 45 rupees.

Conglomerate Hemas Holdings HHL.CM, which rose 0.65 percent to 77.50 rupees a share, said its group net profit in the quarter ended June 30 rose 14.6 percent to 271.1 million rupees. Shares in conglomerate Hayleys HAYL.CM rose 1.87 percent to 149.50 rupees a share, and traders said an individual investor, who had already acquired over 20 percent in the company, was buying the share.

The rupee LKR= edged up to 107.60/62 a dollar, gaining marginally from Friday's close of 107.58/65 on dollar sales by traders after the Associated Motorways deal.

"However, a state bank protected the rupee through buying dollars at the 107.60 level. Otherwise, the rupee would have risen to 107.25/30 level," said a currency dealer. The interbank lending rate or call money rate CLIBOR rose to 18.043 percent, up from Friday's 17.085 percent. (Editing by Mark Williams) ($1=107.61 rupees)