COLOMBO, April 29 (Reuters) - Sri Lankan shares closed more than 1 percent up on Friday, trading in high volumes after the International Monetary Fund said it had reached a staff-level agreement with the island nation for a $1.5 billion three-year loan.
Investors were also buoyed by positive sentiment after the central bank left rates steady earlier this week.
The benchmark stock index ended up 1.14 percent, or 73.73 points, higher at 6,516.26, its highest close since Jan. 13.
"It's purely on the IMF deal. The buying came in and we will see this trend continuing for a few more days," said Dimantha Mathew, head of research, First Capital Equities (Pvt) Ltd.
"But it could be a short-lived one with expected poor earnings while interest rates have been on the rise," he said, referring to the increase in the market interest rates until last week as the central bank allowed the rise to ease the pressure on the rupee.
Analysts say the central bank will be compelled to allow the rise in market interest rates to ease the depreciation pressure on the rupee if the country does not see high dollar inflows.
Before the market opened on Friday, the IMF said it had reached an agreement with Sri Lankan authorities over the loan to help the island nation avert a balance of payments crisis.
The loan, which would have to be approved by the global lender's board in June, is subject to Sri Lanka implementing reforms, including streamlining the tax code and reducing a bloated deficit, the IMF said.
The central bank on Tuesday kept benchmark rates steady as expected while the yields on short-term government securities were also steady at a weekly auction on Wednesday.
The central bank's measures signalled that market interest rates may not rise as was earlier expected.
Turnover stood at a four-week high of 1.53 billion rupees ($10.48 million), twice this year's daily average of around 777.8 million rupees.
Foreign investors were net sellers of 22.5 million rupees worth of equities on Friday, extending the year-to-date net foreign outflow in shares to 2.99 billion rupees.
Shares in Ceylon Tobacco Company Plc rose 1.77 percent while those of Distilleries Company of Sri Lanka Plc rose 0.65 percent.
($1 = 146.0000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anupama Dwivedi)