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COLOMBO, July 14 (Reuters) - Sri Lankan shares posted their highest close in more than 18 months on Friday led by foreign buying in blue chips on expectations of strong corporate earnings, while improved local buying also helped boost sentiment.
The Colombo stock index snapped three sessions of declines to end 0.41 percent higher at 6,766.14, its highest close since Jan. 8, 2016.
"Foreign investors have been buying because they expect improvement in earnings in the future," said Hussain Gani, deputy CEO, Softlogic Stockbrokers.
"They see value in our markets with lower PE ratio. Unless there is volatility in the exchange rate and interest rate, the market should gain with continuous foreign buying."
The market could see a rising trend if yields on fixed-income securities fall as expected by the central bank, said analysts.
The central bank expects a further fall in T-bill yields due to less pressure from government borrowing and a proposed new auction system, Deputy Governor Nandalal Weerasinghe said in an interview with Reuters on Wednesday.
Foreign investors were net buyers of shares worth 478.1 million rupees, extending the year-to-date net foreign inflow to 23.4 billion rupees worth of equities this year.
The day's turnover was 1.63 billion rupees, higher than this year's daily average of 912.1 million rupees.
New foreign investors have been buying Sri Lankan shares since the Pakistani bourse was upgraded as an emerging market from a frontier one, said analysts.
Brokers said domestic investors have been waiting for clarity on the proposed inland revenue legislation, which some companies expect would 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 conglomerate John Keells Holdings Plc closed 0.2 percent higher, while Commercial bank of Ceylon Plc , the country's biggest listed lender, ended 0.3 percent higher.
$1 = 153.7000 Sri Lankan rupees Reporting by Shihar Aneez; Editing by Sherry Jacob-Phillips