COLOMBO, July 10 (Reuters) - Sri Lankan stocks rose on Monday to reach an 18-month closing high led by telecom and diversified shares, but volume was thin as foreign trading low.
Domestic investors, however, cautiously acquired shares amid concern over a proposed tax bill.
The day's turnover was 427.9 million rupees, less than half of this year's daily average of 915.5 million rupees.
The Colombo stock index ended 0.31 percent higher at 6,758.24, its highest close since Jan 7, 2016.
"There was less foreign participation today, which resulted in lower turnover," said Hussain Gani, deputy CEO of Softlogic Stockbrokers.
"As long as the interest rate remains the same, we expect the market to be bullish."
Foreign investors net bought 101.1 million Sri Lankan rupees($658,203) worth of shares on Monday, extending their year-to-date net inflows to 22.8 billion rupees worth of equities.
Analysts said new foreign investors have been buying Sri Lankan shares since the Pakistani bourse was upgraded to emerging market status from frontier market.
In May, index provider MSCI announced changes to its indexes as a result of its semi-annual market reclassification, including reclassifying Pakistan as an emerging market from frontier market, and the addition of 57 securities and removal of 28 securities from its All-Country World Index .
Brokers said local investors have been waiting for some clarity on a proposed inland revenue legislation, which some companies expect will result in higher costs of production.
The IMF, which has long urged Sri Lanka to boost tax revenue through modernisation and simplification of its fiscal system, has urged the government to submit to parliament a new Inland Revenue Act.
Shares of Sri Lanka Telecom Plc rose 1.6 percent, while Ceylon Tobacco Company Plc rose 0.5 percent and Dialog Axiata Plc closed 0.8 percent higher. ($1 = 153.6000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Robert Birsel)