COLOMBO, April 12 (Reuters) - Sri Lankan shares jumped over 1.2 percent on Tuesday as local investors bought risky assets, after an International Monetary Fund statement said a three-year loan programme is expected to conclude in two weeks, dealers said.
Sri Lanka has requested for an IMF loan to help weather a looming balance of payments crisis.
The benchmark stock index rose 1.24 percent to close at 6,353.20, its highest close since Feb. 10.
"The IMF loan is seen as a positive factor," said Dimantha Mathew, head of research, First Capital Equities (Pvt) Ltd.
"However, this gain is unsustainable given the higher interest rates. Until the IMF money comes in, probably by June, the government's borrowing requirement is going to be high, so the interest rates are also going to be high."
Sri Lanka will stop excess government borrowing in a bid to get out of a debt trap and it hopes for cheaper loans after a deal with the IMF is finalised, its central bank chief said on Tuesday.
Analysts stated that a move to reintroduce share transaction levy, which the market believes is in place of proposed capital gain tax, will help boost the sentiment.
Turnover stood at 755.2 million rupees, just below this year's daily average of 790.7 million rupees.
Foreign investors sold a net 31.3 million rupees ($215,209.02) worth equities, extending the year-to-date net foreign outflow to 3.25 billion rupees.
Rising interest rates and higher borrowing by the island nation facing a balance-of-payments crisis have weighed on investor appetite, dealers said.
Analysts and economists worry that slow growth could reduce corporate earnings of a few listed firms.
Conglomerate John Keells Holdings PLC and Hemas Holdings PLC gained 1.8 and 7 percent respectively.
The market will be closed for Sinhala-Tamil new year on Wednesday and Thursday. Trading will resume on Friday.
($1 = 145.4400 Sri Lankan rupees) (Reporting by Shihar Aneez; Editing by Sherry Jacob-Phillips)