Sri Lanka opposition, businesses raise concern over SEC head resignation

* SEC chief to quit before Friday after coming under pressure

* Karunaratne resigns in 8 months after his predecessor quit

By Shihar Aneez

COLOMBO, Aug 15 (Reuters) - Sri Lanka's main opposition party and a major business chamber raised concerns on Wednesday over the impending resignation of the head of the Securities and Exchange Commission, who has been pushing for probes into alleged stock market manipulation.

Tilak Karunaratne said on Tuesday he would quit before Friday, after telling Reuters in an interview earlier in the week that he was under immense pressure to step down.

Karunarante said investors who were being investigated had made false allegations against him, but did not specify who was pressuring him to quit.

His decision comes barely eight months after his predecessor resigned amid broker complaints that tougher regulations were hurting stock prices.

During Karunaratne's term in office, he strengthened the investigation arm of the SEC, continued probes launched by the former SEC chief and launched a number of new investigations.

He called for investigations into a number of market malpractices, including so-called pump-and-dump deals in which investors are lured into apparently cut-price equities. Some of the probes have resulted in fines.

"The resignation of two SEC chairpersons within a period of less than one year will be viewed with concern by investors, corporates and other stakeholders," the Ceylon Chamber of Commerce, Sri Lanka's largest business body, said in a statement.

"An effective and stable regulatory framework is critical to ensure a robust and sustainable capital market, which delivers long term value to all stakeholders."

The main opposition United National Party (UNP) said the immense pressure on the chairman to step down showed the government's failure in the financial market.

"Investors are losing confidence," Harsha de Silva, UNP's spokesman on economic affairs told reporters, adding that SEC's investigation power over market manipulations has been compromised by forcing its chief to step down.

"Who is trying to take that power away from the SEC? The chairman of the SEC himself says there is a mafia. That (mafia) has ultimately captured the regulator forcibly. They will implement SEC's powers as and when they want."

Sri Lanka's stock market has fallen nearly 19 percent since the start of the year, prompting assurances by the authorities that they were ready to make policy changes in an effort to revive the faltering market.

Last month, President Mahinda Rajapaksa, who is also the finance minister, met Karunaratne, high net worth investors and top Colombo Stock Exchange officials to discuss the persistent weakness in the market.

On Wednesday, the broader All-Share Price Index extended gains for a second day, rising 0.85 percent on buying of blue chips some select shares which have been under SEC investigations. (Reporting by Shihar Aneez; Editing by Kim Coghill)