COLOMBO, Dec 16 (Reuters) - Sri Lankan shares fell for a third straight session on Friday to close at their lowest in more than two weeks, as a dollar rally to a 14-year peak after an interest rate increase by the U.S. Federal Reserve earlier this week kept investors subdued.
The 25-basis-point rate increase could hike borrowing costs of foreign capital for Sri Lanka and force the coalition government to borrow locally at higher interest rates, which could also result in movement of money from equities, analysts said.
The Fed also signalled a faster pace of increases in 2017, partly as a result of changes anticipated under a Donald Trump presidency, with the U.S. central bank hinting at three rate hikes next year instead of the two foreseen as of September.
The Colombo stock index ended 0.27 percent weaker at 6,268.61, its lowest close since Nov. 30. The bourse fell 0.88 percent for the week, its second weekly fall.
A block deal in Seylan Bank Plc boosted turnover, with dealers saying state-owned Bank of Ceylon sold 13 million shares to a foreign investor.
"A sizeable crossing of Seylan Bank boosted the turnover. Other than the Seylan trade, there was nothing. The market is getting slower by the day with the holiday mood," said Dimantha Mathew, head of research, First Capital Equities (Pvt) Ltd.
Shares of Seylan Bank Plc ended steady, while Lanka ORIX Leasing Company Plc fell 4.49 percent and conglomerate John Keells Holdings Plc lost 1.14 percent.
Sri Lanka Telecom Plc dropped 2.61 percent, while Commercial Leasing and Finance Plc fell 5.88 percent.
Turnover stood at 1.86 billion rupees ($12.51 million), well above this year's daily average of 753.4 million rupees.
Foreign investors bought a net 1.35 billion rupees worth of shares on Friday, extending the year-to-date net foreign inflow to 1.87 billion rupees worth of equities.
$1 = 148.6500 Sri Lankan rupees Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath