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Sri Lanka stocks extend fall despite rate cut in thin trade; rupee steady

COLOMBO, June 3 (Reuters) - Sri Lankan shares ended weaker on Monday, falling for the second straight session in dull trade as the market shrugged off a widely expected rate cut by the central bank while the rupee closed steady, market sources said. ** On Friday the central bank cut its key interest rates to support its faltering economy as overall business and consumer confidence slumped following deadly bomb attacks in April. ** Traders said the Easter Sunday bombings and violence following the attacks, and worries over slowing economic growth weighed on investor sentiment. Most investors have shied away from the market since the April 21 bombings that killed more than 250 people. ** Sri Lanka is unlikely to hit its full-year economic growth target of 3-4% following the bombings, junior finance minister Eran Wickremeratne told Reuters last week. A Reuters poll has forecast growth to slump to its lowest in nearly two decades this year. ** The central bank chief said on Friday that he expected the economy to grow by 3% or less this year due to the impact of the Easter attacks, and the bank was preparing a downward revision to its earlier projection for 4% growth. ** The benchmark stock index ended 0.22% weaker on Monday at 5,299.50. It rose 0.3% last week, recording its second straight weekly gain. The bourse has declined 12.44% so far this year. ** The government's pension fund has resumed investing in risky assets as the stock market is "extremely undervalued at the moment and is considered a good time to go into", the central bank governor said. ** Turnover was 188.6 million Sri Lankan rupees ($1.07 million), less than this year's daily average of around 546.9 million rupees. Last year's daily average was 834 million rupees. ** Foreign investors bought a net 518,433 rupees worth of shares on Monday, extending the year-to-date net foreign outflow to 5.55 billion rupees worth of equities. ** The rupee ended steady at 176.40/60 per dollar, compared with Thursday's close of 176.40/55, market sources said. ** Analysts expect the rupee to weaken further as money flows out of stocks and government securities. ** The rupee fell 0.06% last week but is up 3.5% for the year. Exporters had converted dollars as investor confidence stabilised after a $1 billion sovereign bond was repaid in mid-January. ** The rupee dropped 16% in 2018 and was one of the worst-performing currencies in Asia. ** Foreign investors bought a net 2.1 billion rupees worth of government securities in the week ended May 22, but the island nation saw a net foreign outflow of 19.1 billion rupees so far this year, central bank data showed. ** Investor sentiment was damaged at the end of last year when President Maithripala Sirisena abruptly removed Prime Minister Ranil Wickremesinghe and then dissolved parliament. A court later ruled the move unconstitutional, but the political turmoil led to credit rating downgrades and an outflow of foreign funds. ** For a report on global markets, click ** For a report on major currencies, click ($1 = 176.4000 Sri Lankan rupees) (Reporting by Ranga Sirilal Editing by Frances Kerry)