[lkdood]

Sri Lankan shares sank to a 1-1/2-year low on Wednesday as investors sold off to settle margin calls, while the central bank intervened again to defend the rupee as the country struggles with a balance of payments crisis.

The main share index fell 2.14 percent or 119.18 points to 5,442.25 - its lowest since August 2010 - erasing 43 billion rupees ($376.53 million) from the index in its sixth straight day of falls.

Retail investors sold to settle margin calls, while institutional investors stayed away from the market after the central bank raised interest rates and allowed the rupee to depreciate in the previous couple of sessions.

"Panic sellers were selling at buyers' prices and quitting," said Kumuthini Sivathas, a research analyst at Asha Philip Securities in Colombo."There was no buying interest witnessed at all."

Sri Lanka's central bank on Friday raised benchmark interest rates by 50 basis points, its first hike in five years, and it has allowed the rupee to depreciate by 40 cents since Thursday.

On Wednesday the rupee ended flat at 114.30 a dollar from Monday's close as the bank defended it by selling more than $27 million, having allowed the currency to depreciate by 20 cents in each of the two previous sessions.

The stock and currency markets were closed on Tuesday to mark a Buddhist religious holiday.

Through Wednesday, the central bank had spent $1.24 billion in 51 sessions since a 3 percent devaluation on Nov. 21 to curb a sharp rupee fall, despite the country facing a current account deficit and a balance-of-payments crisis.

Despite the fall in stocks, foreign investors were net buyers of 239.5 million rupees on Wednesday, extending the foreign inflow to 489.6 million rupees worth of shares so far this year, after net outflows of 19.1 billion last year.

Sri Lanka's bourse is the worst performer among Asian markets with a 10.41 percent loss so far this year. It was 10th-best in 2011, after being on top in 2009 and 2010.

The day's turnover was 868.7 million rupees, far below last year's average turnover of 2.3 billion. Volume came to 46.5 million shares compared with last year's record daily average of 102.7 million. ($1=114.3000 Sri Lanka rupees)