* Foreign investors sells 222.5 mln on net basis
* Rupee edges down on importer dollar demand
COLOMBO, Jan 26 (Reuters) - Sri Lanka's stock market gained on Wednesday as retail investors bought select shares on hopes of strong profits with the island nation's post-war economic growth picking up, while the rupee edged down on importer dollar demand.
The island's main share index .CSE closed 0.23 percent or 16.63 points firmer at 7,241.87. It hit a record closing high of 7,261.37 on Monday after touching a new intraday peak of 7,320.22 points.
It has been Asia's best performer with a 9.1 percent gain so far in 2011 after being the top performer last year with a 96 percent return.
Turnover was 5.05 billion rupees ($29.3 million), more than two times the last year's daily average of 2.4 billion. Foreign investors were net sellers for 222.5 million rupees' worth of shares on Wednesday and they have sold a net 2.6 billion rupees so far in 2011, after selling a record net 26.4 billion in 2010.
The bourse is trading at a forward price-to-earnings (P/E) ratio of 18.1, highest among emerging markets, compared with 12.9 in Asian markets and 11.9 in global emerging markets, Thomson Reuters StarMine data showed. Its 14-day relative strength index is at 80.2, beyond the overbought limit of 70.
The traded share volume was 171.6 million against a five-day average of 166.8 million. Last year's daily average volume was 69.2 million.
The rupee LKR= closed weaker at 111.05/15 a dollar from Tuesday's 110.95/111.00 on strong importer dollar demand, traders said.
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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