COLOMBO, June 17 (Reuters) - Sri Lankan shares edged up on Friday from a more than seven-week closing low hit in the previous session as investors picked up beaten down shares of companies such as conglomerate John Keells Holdings Plc .

The gains were however capped by concerns over a government proposal to reintroduce capital gains tax, brokers said.

Turnover hit a 19-week low as investor sentiment took a hit on continued foreign fund outflows and rising interest rates, dealers said.

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The benchmark Colombo stock index ended 0.47 percent higher, or up 30.22 points at 6,465.99, edging up from its lowest close since April 27 hit on Thursday.

It lost nearly 1 percent on the week.

"After yesterday's panic selling, the market recovered on valued stocks like Keells and Commercial," said Atchuthan Srirangan, a senior research analyst at First Capital Equities (Pvt) Ltd.

Shares in conglomerate John Keells Holdings Plc rose 1.27 percent, while Commercial Leasing & Finance Plc jumped 5.41 percent and the biggest listed lender Commercial Bank of Ceylon Plc gained 1.27 percent.

"But still the retailers are on the sidelines waiting to see the real impact of the capital gains tax, even though there was some clarity that the tax is on property and not on stocks," he added.

On Thursday, the bourse fell 1 percent as concerns over a government decision to reintroduce capital gains tax kept investors on the sidelines.

Sri Lanka's cabinet approved a proposal to reintroduce the tax on Wednesday, especially on land sales, with a cabinet spokesman saying no decision had been taken on whether the tax would apply to capital gains in the share market.

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Turnover stood at 261.7 million rupees ($1.80 million), the lowest since Feb. 11 and well below this year's daily average of around 760.1 million rupees.

Overseas funds offloaded a net 44.9 million rupees worth of equities on Friday, extending the year to date net foreign outflow to 5.64 billion rupees worth shares.

Treasury bill yields rose between 1 and 4 basis points at a weekly auction on Wednesday. They have risen between 6 and 40 basis points since the central bank left key policy rates steady for on May 20.

The average prime lending rate edged up 24 basis points to 10.47 percent in the week ended June 10. Stockbrokers have said rising interest rates could be detrimental to risk assets if they jump beyond 12 percent. ($1 = 145.0000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath)