The rupee closed at 113.45/113.51 per dollar, little changed from Monday's close of 113.45/113.53. The currency hit an all-time closing low of 113.57/113.62 on Sept. 18.

"The spot rate was flat, but there was pressure on forward premium as most of the traders sold forwards to banks, expecting dollar rates to come down, after the news on the sovereign bond issue," said a currency dealer.

Sri Lanka is set to issue a $500 million of 10-year sovereign bonds later this month. On Monday, a source told Reuters that international roadshows for the debut issue were being held this week, and the bond would be launched soon after, subject to market conditions.

The rupee has depreciated about 5.7 percent so far this year, on top of a 5 percent fall in 2006.

Some analysts expect it to weaken to 114.50 by the end of the year. The six-month forward rate stood at 121.07/121.38.

The rupee is weakening mainly due to a hefty trade deficit caused by costly fuel imports, and inflation that quickened to 17.5 percent in September as measured on a 12-month rolling average.

The Colombo All Share <.CSE> index closed down 0.5 percent, or 12.74 points, at 2,560.03, a third straight fall that took the market to its lowest close since Sept. 28.

Heavyweight Dialog Telekom fell 1.1 percent to 23.00 rupees, as calculated on a weighted average, while leading fixed line operator Sri Lanka Telecom closed unchanged at 34.00 rupees a share.

Conglomerate John Keells Holdings fell 0.6 percent to 127.75 rupees.

"There was no positive news from the peace front as well as from the economic front to move the market up," said Geeth Balasuriya, assistant research manager at HNB stockbrokers.

Turnover was 108.02 million rupees , a fraction of last year's average daily turnover of 400 million rupees.

Foreigners were net buyers of 42.28 million rupees of shares.

The bourse is down by 15.7 percent from its record intraday high of 3,038.48 on Feb. 19, and has dropped 6 percent this year.

Interbank lending rates or call rates <CLIBOR> fell to 14.614 percent from 17.236 percent on Monday.

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