Sri Lanka fighting puts investments on ice

COLOMBO, Aug 16 (Reuters) Sri Lankan troops and Tamil Tigers traded artillery fire today and jets bombed rebel territory, as businesses worried the worst fighting since a 2002 truce was delaying investment in the 23 billion dollars economy.

Three weeks of fierce fighting that many regard as a new chapter of a two-decade civil war, coupled with an assassination and two car bombs in the capital in a week, have sent shudders through the investment community.

''We've put everything on hold,'' said an executive from one multinational company, asking not to be named. ''What can you do with this much uncertainty? Better to sit it out for now.'' The ceasefire brought a few years of respite, helping revive Sri Lanka's economy and its vital tourism industry.

But the quest for a permanent peace has repeatedly stumbled, and investors are sitting on the sidelines until it becomes clear whether the island is sliding back into a full-scale war that has killed around 65,000 people since 1983.

''Certainly the big investors would be holding back at the moment until things are clearer,'' said Harsha Fernando, CEO of brokerage SC Securities.

Hoteliers and restaurateurs on southern beaches who are still trying to rebuild their businesses after the Dec. 2004 tsunami are being punished yet again. August was supposed to be a bumper month.

''Who will come if there is war? I wouldn't,'' said Lalith Nagasinghe who spent nearly ,000 rebuilding his Lucky Tuna restaurant and guest house in the southern resort town of Unawatuna after the tsunami.

''I won't even go to Colombo these days.'' NERVOUS OFFICE WORKERS Schools were shut across the island this week after officials brought holidays forward as a security precaution.

Many office workers are nervous after attacks in the capital, where troops man bunkers on roads and military convoys speed through town escorting VIPs, rifles trained on passing traffic.

Troops on Wednesday hunted for Tamil Tigers who have infiltrated government-held territory in the northern Jaffna peninsula, where an indefinite curfew still holds and thousands of people have taken refuge in churches. Across the island, aid workers believe more than 100,000 may be newly displaced.

The navy said it killed five Tiger rebels who had mingled with civilians on an islet just to the west of Jaffna where the rebels' feared Sea Tiger arm landed fighters last week. Aid workers said they had heard intermittent artillery fire from the area south of the northeastern port of Trincomalee.

The Tigers said air force Kfir fighter jets dropped bombs near the island's main north-south road within their territory at a lagoon crossing called Elephant Pass, site of some of the most ferocious fighting of past years.

The air force also mounted air raids near the coastal town of Mullaithivu, where the Sea Tigers are believed to be based.

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