COLOMBO, Dec 16 (Reuters) - The Sri Lankan rupee fell for a third session on Friday as banks bought the dollar after the central bank raised spot reference rate further and the U.S. Federal Reserve signalled more tightening next year, dealers said.
The dollar stood near a 14-year peak, bond yields were highly elevated and Asian stocks struggled for traction on Friday as global markets continued adjusting to the idea of higher U.S. interest rates.
The Fed raised interest rate by 25 bps on Wednesday and signalled a faster pace of increases in 2017 as central bankers adapted to the incoming Donald Trump administration's promises of tax cuts, spending and deregulation.
Rupee forwards were active with spot-next forwards traded at 149.50/60 per dollar at 0514 GMT, compared with Thursday's close of 149.45/55.
"Generally in December we don't see importer demand. But we have seen some banks including some state banks buying dollars, may be to cover their positions after the central bank raised the reference rate," a currency dealer said, asking not to be named.
On Thursday, the central bank further increased the spot reference rate by 30 cents to 149.10. A day before, it had raised the rate by 10 cents.
Officials from the central bank were not available for comment.
The spot rupee was hardly traded, but was quoted at 149.10/20.
The rupee usually rises in December ahead of Christmas and New Year due to remittances from expatriates, but dealers said the currency was expected to face pressure this time due to higher dollar demand from importers following the Fed rate hike.
Analysts expect some capital outflow as the immediate reaction to the Fed rate hike and are also concerned over government's foreign borrowing cost rising in the short term.
Foreign investors net sold 45.4 billion rupees ($305.6 million) worth of government securities in the seven weeks ended Dec. 7.
Sri Lankan shares were down 0.10 percent at 6,279.47 as of 0555 GMT. Turnover stood at 185.59 million rupees ($1.24 million). ($1 = 149.1000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Vyas Mohan)