COLOMBO, Dec 31 (Reuters) - The Sri Lankan rupee traded a tad firmer in dull trade on Tuesday as two state banks sold dollars to prevent depreciation of the currency amid a dollar liquidity crunch in the market with many investors on year-end holidays, dealers said.
The spot rupee was trading at 130.75/80 per dollar at 0722 GMT, slightly up from Monday's close of 130.80/90.
Though there was no importer dollar demand, there was lack of dollar liquidity in the market, dealers said.
"At one point the rupee almost fell to 131.00, but then two state banks started to sell dollars at 130.75," a currency dealer said.
"Market expects little appreciation of the rupee in the first quarter if the government goes for $1.5 billion bond issue. But falling interest rates may pressurise the exchange rate from the second quarter."
Since mid-November, dollar buying by a state bank has offset the boost to the rupee from expatriates sending money to their families for Christmas and New Year.
The rupee has gained around 3.3 percent since it hit a record low of 135.20 on Aug. 28.
At 0731 GMT, Sri Lanka's main stock index was up 0.23 percent, or 13.55 points, at 5,912.75, trading around its near eight-week high.
The index is poised for a yearly gain this year with a rise of 4.78 percent so far this year, after recording annual losses for the last two years.
It has given a return of 2.17 percent so far this year measured in terms of U.S. dollars. (Reporting by Shihar Aneez; Editing by Sunil Nair)