COLOMBO, May 26 (Reuters) - Sri Lankan shares closed at a four-week low in thin trade on Thursday, led by blue chips amid foreign investor outflow as investor sentiment took a hit on rising interest rates despite the central bank keeping key policy rates steady last week.
Yields on treasury bills edged up by between 5 and 27 basis points to near three-year highs at a weekly auction on Wednesday. The central bank left key policy rates steady for a third straight month.
The benchmark stock index fell 0.22 percent, or 14.73 points, to 6,568.76, its lowest close since April 29. It fell 1.12 percent last week, its first weekly fall in seven weeks.
"We expect negative trend to continue with the rising interest rates and also on the continued foreign outflow," said Dimantha Mathew, head of research of First Capital Equities (Pvt) Ltd.
"We expect the market to bounce back once the expected IMF and sovereign bond inflows come."
Foreign investors net sold 205.8 million rupees ($1.41 million) worth of shares on Thursday, extending the year to date net foreign outflow to 4.91 billion rupees worth of shares.
Turnover stood at 398.1 million rupees ($2.71 million), the lowest since March 26 and nearly half this year's daily average of around 797.8 million rupees.
Top conglomerate John Keells Holdings, which on Tuesday announced a share subdivision, fell 1.71 percent. Keells posted a 13 percent fall in March quarter earnings on Wednesday.
Shares in Sri Lanka Telecom Plc fell 0.73 percent while Cargills (Ceylon) Plc lost 3.13 percent, dragging down the overall index.
Concerns over a government move to increase the value added tax and impose new taxes effective May 2, which could hit the bottom line of many companies, also dented sentiment, analysts said. ($1 = 146.9000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath)