S.Lanka stocks inch higher as violence lulls

COLOMBO, June 30 (Reuters) Sri Lankan stocks closed slightly firmer on Friday, as investors focused on select blue chips like oil retailer Lanka IOC amid a lull in clashes between the military and Tamil Tigers, traders said.

The Colombo All Share <.cse> index closed up 0.1 percent at 2,114.37 points. Turnover was 454 million rupees (.36 million), above the recent daily average. The local rupee currency closed barely changed.

The stock market has risen over 9 percent so far this year, but slipped sharply in June after the bloodiest period since a 2002 truce between the state and Tamil Tigers.

''The market is up on buying of Lanka IOC and foreign buying of John Keells,'' said Prasanna Chandrasekera, assistant manager at John Keells stockbrokers in Colombo.

Sri Lankan arm of Indian oil giant, Lanka IOC one of the main contributors of the days turnover closed up 2.8 percent at 17.50 rupees a share.

Conglomerate John Keells Holdings closed unchanged at 132 rupees a share, while heaviest weighted stock, mobile operator Dialog Telekom closed flat at 19.75 rupees.

''Same cautious momentum continued, going slow on the buying side but specific stocks are attracting some foreign buying. There was a lot of foreign buying of JKH,'' he said.

Many investors are still jittery after a rash of recent attacks culminated in a suicide attack on the outskirts of Colombo on Monday that killed the deputy chief of staff of the Army. Sporadic killings continued throughout the week.

Traders say most investors are holding their positions until they know whether recent violence that has killed more than 700 people so far this year and left a 2002 ceasefire in tatters will spill over into full-blown war.

After the market closed, the government Census and Statistics Department said inflation rose to 10.1 percent in June as measured on a 12-month moving average, compared to 9.4 percent in May.

''The market didnt have time to react to it. We were expecting that, but with inflation and interest rates (aside) I think the bottom line is the peace front,'' Chandrasekara said.

On Thursday the central bank said the billion economy expanded 8.1 percent in the first quarter compared to the same period in 2005, but warned future growth would depend on the island's stalled peace process.

''It was very much on the cards. We were expecting somewhere between 10.1 to 10.5 percent, especially with all the fuel price hikes,'' said Chintaka Ranasinghe, head of research at John Keells Stock Brokers.

Sri Lanka's rupee closed barely changed at 103.95/103.98 to the dollar, from Thursday's close of 103.94/103.97.

The rupee is trading within sight of its all-time low of 105.57, which was hit on December 17, 2004.

Call rates transacted in the brokers' market were 10.519 percent from 10.974 percent on Thursday.

REUTERS MQA GC1754