COLOMBO Aug 31 (Reuters) - Sri Lankan shares edged down on Wednesday to post over two-week closing lows as investors sold large caps to book profits while retail investor participation rose a day after the central bank held its key policy rates steady.

The central bank left the key policy interest rates unchanged on Tuesday, as expected, saying previous tightening measures are being gradually transmitted to the economy.

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The benchmark Colombo stock index ended 0.21 percent weaker at 6,528.21, its lowest close since Aug. 12. For the month, it gained 2.1 percent, the second straight monthly rise.

"Today was an active day, we saw retail investors, institutions and foreigners were active. We saw some profit taking coming in," said Yohan Samarakkody, head of research, SC Securities (Pvt) Ltd.

Turnover stood at 1.1 billion rupees ($7.57 million), more than this year's daily average of 755.4 million rupees.

Foreign investors bought a net 266.4 million rupees worth of shares, extending the net foreign inflow so far this month to 979.9 million rupees worth of equities.

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However, they have been net sellers of 3.67 billion rupees worth of shares so far this year.

Shares in Ceylon Tobacco Company Plc fell 3.6 percent, while those in Nestle Lanka Plc dropped 1.30 percent. ($1 = 145.3000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu)