COLOMBO Aug 29 (Reuters) - Sri Lankan shares fell for a second straight session on Monday in moderate volume as investors booked profits.

The increase in excise duty on diesel which dragged on Lanka OIC also pulled down the index, brokers said.

Sri Lanka's finance ministry on Friday said it had increased the excise duty on diesel by 10 rupees with effect from Aug. 20, but there will not be any price increase in diesel at pumps. .

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Shares in Lanka IOC ended down 2.12 percent on Monday. They fell 10.58 percent during Friday' session after news of the excise duty hike.

The benchmark Colombo stock index ended 0.16 percent down at 6,540.19, its lowest close since Aug. 12. It hit its highest close since May 20 on Tuesday.

The bourse fell 0.78 percent last week, recording its first weekly fall in four weeks.

"We are experiencing a bit of profit-taking," said Dimantha Mathew, head of research at First Capital Equities (Pvt) Ltd.

"But the overall investor sentiment is improving continuously with investors bullish on the construction sector as the government is announcing new expressway constructions and other development projects."

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Foreign investors bought a net 212.8 million rupees ($1.46 million) worth of shares on Monday, extending the net foreign inflow so far this month to 939.3 million rupees worth of equities, but have been net sellers of 3.71 billion rupees worth of shares so far this year.

Turnover stood at 889.9 million rupees, more than this year's daily average of 753.4 million rupees.

Shares in Dialog Axiata Plc fell 0.88 percent while Vallibel One Plc fell 2.74 percent and Cargills Ceylon Plc fell 1.63 percent. ($1 = 145.7000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sunil Nair)