COLOMBO, June 1 (Reuters) - Sri Lankan shares edged down on Wednesday for a third straight session as rising interest rates weighed on risky assets, while lack of new catalysts and concerns over foreign outflows also dented sentiment.

Treasury bill yields rose between 4 and 35 basis points to near three-year highs in two weekly auctions through Wednesday despite the central bank leaving key policy rates steady for a third straight month on May 20.

Foreign investors were net sellers of 35.4 million rupees ($239,189.19) worth of shares on Wednesday, extending their year-to-date net equities selling to 5.62 billion rupees.

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The benchmark Colombo stock index ended 0.12 percent, or 7.76 points, weaker at 6,542.75, its lowest close since April 29. The index declined 0.94 percent during last week.

"The market is moving sideways. All are waiting for something to happen to boost sentiment. Still there is no positive sentiment for investors to come in," said a stock broker asking not to be named.

Another broker said a rise in interest rates could be detrimental to risky assets if they jumped beyond 12 percent. The average prime lending rate (AWPR) edged up 15 basis points to 10.15 percent in the week ended May 27.

Analysts said market sentiment remained weak as investors were waiting for catalysts such as a big foreign direct investment or initial public offering or inflows from the International Monetary Fund (IMF).

Turnover stood at 618.1 million rupees, well below this year's daily average of around 793.1 million rupees.

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Shares in Dialog Axiata Plc fell 2.68 percent while those in Lanka ORIX Leasing Company Plc dropped 2.93 percent, dragging the index down.

Top conglomerate John Keells Holdings' shares ended 0.06 percent weaker and accounted for 41 percent of the day's turnover.

($1 = 148.0000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anupama Dwivedi)