COLOMBO May 6 (Reuters) - Sri Lankan shares rose for a second straight session on Friday to hit their highest close in about four months, led by telecom stocks amid foreign investors' buying.

However, the gains were capped as investors were worried that the island government's move to increase the value added tax (VAT) and impose new taxes effective from Monday would hit the bottom lines of companies.


The benchmark stock index rose 0.21 percent to 6,592.45, its highest closing level since Jan. 11. For the week, it gained 1.2 percent, its fifth straight weekly rise.

"It looks like the market is continuing to move up at a slow pace with some foreign selling pressure on big-cap shares," said Dimantha Mathew, head of research, First Capital Equities (Pvt) Ltd.

"High interest rates and earnings yet to be released will have an impact on the market."

Foreign investors, who have sold equities worth 2.88 billion rupees ($19.84 million) so far this year, were net buyers for the second straight session on Friday. They bought a net 71.7 million rupees worth of shares.


Turnover stood at 701.2 million rupees, less than this year's daily average of around 777 million rupees.

Leading fixed line phone operator Sri Lanka Telecom Plc jumped 6.03 percent, while conglomerate John Keells Holdings Plc rose 0.58 percent. ($1 = 145.1500 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu)