The main stock index rose 1.32 percent, or 80.51 points, to 6,201.68, the highest close since Nov. 14, 2011.
'Investors are upbeat after foreign investors have been buying continuously. Retail investors are also on the buying side as they hope for a rate cut on Friday,' a stockbroker said on condition of anonymity.
Shares have been on a rising trend on expectations of a fall in interest rates after Treasury Secretary P.B. Jayasundera and the central bank said interest rates could ease in May-June.
The market has gained 7.3 percent since the treasury secretary's comments on April 9.
The International Monetary Fund, however, said on Thursday Sri Lanka must not loosen monetary conditions as inflation remains a concern, even though prices had risen at a slower pace in April than the previous month.
Shares in market heavyweight John Keells Holdings rose 1.65 percent to 264.50 rupees a share.
The turnover was 1.39 billion rupees ($11 million), more than this year's daily average of 1 billion rupees.
Foreign investors were net buyers of 248.8 million rupees of shares, extending the net foreign inflow so far this year to 9.21 billion rupees. Last year, the bourse saw a net inflow of $303 million.
The rupee ended at 126.30/37 per dollar, firmer from Monday's close of 126.40/50, on exporter dollar sales, said currency dealers.
($1 = 126.4150 Sri Lanka rupees)
(Reporting by Shihar Aneez and Ranga Sirilal; Editing by Anupama Dwivedi)
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