* Index hits lowest since Dec. 23
* Foreign investors net sellers of 571.2 mln rupees on week
* State bank defends rupee amid importer dlr demand
COLOMBO, July 22 (Reuters) – Sri Lanka’s stock market fell
to a seven-month low on Friday and deeper into negative
territory as investors sold large-cap shares, foreign investors
kept selling out and month-end margin settlements all weighed. 

The main share index fell 2 percent or 131.68 points
in early trade and closed 0.94 percent or 61.72 points weaker at
6,537.25, the lowest since Dec. 23. 

The bourse, Asia’s best performer for the last two years,
had gained since the beginning of 2009 when Sri Lanka’s 25-year
war was nearing its end. It returned 124 percent in 2009 and 96
percent in 2010. But it is down 1.49 percent so far this year. 

Foreign investors were net sellers of 86.5 million rupees
worth of shares on Friday, bringing the total outflow to 571.2
million this week. They have sold 7.71 billion rupees in 2011
after a record outflow of 26.4 billion in 2010.

The market fell 3.07 percent this week, despite improving
macroeconomic fundamentals which sparked a sovereign rating
upgrade this week, bolstering the sale of a $1 billion, 10-year
sovereign bond on Wednesday. 
 

Since June 1, the index has shed 11.5 percent, mainly due to
forced selling in line with the policy of Sri Lanka’s Securities
and Exchange Commission (SEC) to eliminate margin trading by
year’s end.

The day’s turnover was 1.34 billion Sri Lanka rupees ($12.2
million) well below last year’s average of 2.4 billion and this
year’s 2.71 billion.

Traded volume was 76.8 million against a five-day average of
58.7 million. The 30-day and 90-day average trading volumes were
120.2 million and 103 million, respectively. Last year’s daily
average was 67.9 million.

The rupee ended steady at 109.49/50 a dollar for a
sixth straight day as a state bank, through which the central
bank directs the market, continued selling dollars at 109.50