By Shihar Aneez
COLOMBO, Jan 22 (Reuters) - Sri Lanka's bourse rose 1.74 percent on Thursday in thin trade as retail investors bought blue chips on the expectation of an economic recovery, with the country's 25-year war looking to be near its end. The rupee edged up on importer demand for dollars.
The Colombo All-Share index .CSE rose 30.01 points to 1750.14, its third rise for the week. The bourse is up 16.4 percent so far this year after falling 40.8 percent last year on earnings and economic woes including high borrowing costs.
Sri Lanka's army chief has said he expects the ground war could be completely finished by mid-April with the Tamil Tigers boxed into an area of less than 400 square km (155 sq miles).
"Retail investors are buying select shares for short term profit-taking as investor sentiment has improved on recent war victories," said Mohandas Thangarajah, a stockbroker at First Guardian Equities.
"However, institutional investors are still waiting for some fundamental changes including a currency devaluation. This is why we still see very low levels of trading."
The average daily market turnover in the first 14 market days of this year has been 117.4 million rupees, compared to 464 million rupees throughout last year, analysts said.
Sri Lanka's top mobile phone operator Dialog Telekom DIAL.CM closed 5 percent firmer at 5.25 rupees, calculated on a weighted average, while market heavyweight Sri Lanka Telecom SLTL.CM rose 1.43 percent to 35.50 rupees.
Sri Lanka's top conglomerate John Keells Holdings JKH.CM closed 1.1 percent to 69 rupees, while shares in top listed private lender Commercial Bank of Ceylon COMB.CM rose 3.45 percent to 90 rupees a share.
Shares in John Keells Holdings had risen around 40 percent in the previous six sessions, while Dialog had firmed 17.3 percent in past five sessions after hitting a life low on Jan. 12
Market turnover was 64.2 million rupees ($0.56 million), less than a quarter of the 2008 daily average of 464 million rupees.
The rupee LKR= edged down to 113.90/114.00 per dollar on importer demand for dollar, currency dealers said.
"A state bank bought around $130 million to settle oil import bills at around 113.92 level," a currency dealer said.
The rupee hit an all-time low of 114.15 a dollar in trading on Jan. 5, while it hit a life closing low of 113.85/114.00 on Friday. It has fallen 0.83 percent this year.
The central bank on Monday assured it had taken steps to build up reserves that dwindled sharply in 2008 and would not devalue the rupee, after a weekend newspaper article.
The Sunday Times article said the country would have to either devalue the rupee by 20 percent or go for an IMF bailout package, saying foreign exchange reserves were now only enough to pay for a little more than six weeks of imports.
But both Central Bank Governor Ajith Nivard Cabraal and Chief Economist Nandalal Weerasinghe said the report was false.
The interbank lending rate or call money rate CLIBOR edged down to 14.218 percent from Wednesday's 14.251 percent.
For secondary market rates, please see <0#LKBMK=>. (Editing by Bryson Hull)