* Investors expect strong Dec. quarter earnings, rate cut
* Rupee edges down on importer dollar demand
COLOMBO, Jan 20 (Reuters) - Sri Lanka's bourse hit a record closing high on Thursday on hopes of a further cut in lending rates and better earnings in the December quarter, while the rupee edged down on importer dollar demand.
The island's main share index .CSE closed 1.91 percent or 134.77 points firmer at 7,193.10 surpassing its previous closing high of 7,147.77 from Oct. 1.
It has been Asia's best performer with an 8.4 percent gain so far in 2011 after being the top performer last year with a 96 percent return.
Analysts said the central bank's recent comments that banks should narrow the interest rate spread, and strong profit hopes in the December quarter, drove the market up.
Turnover was 4.7 billion rupees ($42 million), nearly two times last year's daily average of 2.4 billion. Foreign
investors were net sellers of a net 121.9 million rupees' worth shares on Thursday and they have sold a net 1.8 billion rupees so far this year after selling a record net 26.4 billion rupees in 2010.
The bourse is trading at a forward price-to-earnings (P/E )ratio of 17.8, highest among emerging markets, compared with 13.2 in Asian markets and 12.1 in global emerging markets, Thomson Reuters StarMine data showed. Its 14-day relative strength index is at 84.4, beyond the overbought limit of 65.4.
The traded share volume was 142.4 million against five-day average of 195 million. Last year's daily average volume was 69.2 million.
Sri Lanka's rupee LKR= closed down at 110.92/95 a dollar from Tuesday's 110.85/88 on importer dollar demand, traders said. Both stocks and share markets were closed for a holiday on Wednesday.
FACTORS TO WATCH:
- Corporate earnings for the December quarter
- Whether a technical correction will bring the bourse down
- If foreign funds buy shares in large volumes
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