COLOMBO, June 7 (Reuters) - The Sri Lankan rupee recovered from early falls and closed slightly firmer on Wednesday as late inward remittances surpassed mild dollar demand from importers, dealers said.
Rupee forwards were active, with spot-next forwards ending at 152.85/95 per dollar, compared with Tuesday's close of 152.88/93.
"There was (dollar) selling in the latter part of the day. We also saw a state bank selling. There was a bit of (dollar) inflows," a currency dealer said, asking not to be named.
The rupee has been under pressure after the central bank governor said the bank would allow gradual depreciation of the currency.
The central bank has set a target of $1.2 billion in direct market purchases of dollars to boost the island nation's reserves this year.
The spot rupee, which the central bank had fixed at 152.50 since May 5, did not trade on Wednesday.
Foreign investors bought a net 740 million rupees ($4.86 million) worth of government securities in the week ended May 31. They have sold a net 41.33 billion rupees worth of securities so far this year.
Trade was dull as investors assessed the extent of damage to the economy from the recent floods and landslides.
The country's main agricultural crops - tea and rubber - were hit by the worst torrential rains in 14 years.
Damage to agricultural exports would put pressure on the rupee, currency dealers said. The hospitality and manufacturing sectors are likely to be the worst hit, analysts said.
However, dealers said there was some optimism over expected inflows in the form of international assistance, which could help offset potential downward pressure on the local currency.
Dealers said the aid inflows could help the rupee, but the central bank will have to tighten interest rates to curb unnecessary credit growth and inflationary pressure.
The floods could hurt overall economic growth and also widen the government's budget deficit with high infrastructure spending, dealers said.
The markets will be closed on Thursday for a Buddhist religious holiday. Normal trading will resume on Friday. ($1 = 152.8000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu)