Emerging markets, many of which have been primed by the cheap Fed cash, saw some of the biggest selling as investors rushed to the exits on Thursday, after the U.S. Federal Reserve laid out a timetable for turning off the taps on its $85 billion-a-month bond-buying programme.
'Some foreign investors sold their long-term bonds and shifted to shorter tenure securities to hedge their exposure,' a currency dealer said on condition of anonymity. 'We still see a weaker rupee, with foreign investors selling their bonds.'
The rupee closed at 128.43/47 to the dollar, 0.2 percent weaker from Wednesday's close of 128.10/20.
The rupee lost 1.6 percent last week. It fell to 129.00/129.10 per dollar in early trades on Friday, its lowest in more than six months, as foreign investors sold debt as part of a broader selloff in emerging markets.
The local currency has weakened 0.7 percent so far this year, following a 10.7 percent depreciation in 2012 as the central bank opted for a flexible exchange rate regime in February 2012.
Sri Lanka's main stock index closed flat, but the turnover hit a more than six-week high due to a block deal in market heavyweight John Keells Holdings between two foreign funds, said stockbrokers.
The bourse ended 0.04 percent, or 2.21 points, firmer at 6,211.44. It hit a near a five-week low on Tuesday on concerns of a possible pullout by foreign funds, following regional peers.
On Wednesday, sources told Reuters that top conglomerate Keells will sign a $640 million deal to establish an integrated hotel complex. Shares in Keells closed 1.7 percent up at 269.50 rupees per share. The market witnessed net foreign outflows of 183 million rupees ($1.42 million) on Thursday, but foreigners have been net buyers of 16.04 billion rupees in shares.
The day's turnover was at 3.48 billion rupees, more than thrice of this year's daily average of 1.01 billion rupees.
($1 = 128.4750 Sri Lanka rupees) (Reporting by Shihar Aneez; Editing by Prateek Chatterjee)
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