The main stock index gained 0.23 percent, or 13.58 points, to 5,912.78, its highest close since Nov. 5.
The index has given a return of 2.18 percent for the year measured in dollar terms.
'The market will see a boom next year because of interest rates coming down,' said a stockbroker on condition of anonymity. 'Investors need to invest them somewhere and the best option for them to get a higher return is the share market.'
However, during the year, many investors locked their funds in risk-free debentures instead of risky assets due to a sluggish bourse amid falling interest rates.
This year, 28 debentures were listed to raise a total of 68.2 billion rupees compared to a total of 12.5 billion rupees from three debentures last year.
'Next year also, we will see more interest in debt than stocks and that will have an adverse impact on the stock market because the same money will shift from stocks to debt,' a top Securities and Exchange Commission official told Reuters on condition of anonymity.
The central bank's key policy rates are at multi-year lows and yields on treasury bills are at more-than-two-year lows. The market expects interest rates to fall further in 2014.
Foreign investors bought a net 22.88 billion rupees ($174.89 million) worth of stocks this year compared with a record 38.68 billion rupee net foreign inflow last year.
On Tuesday, a 21.2 percent gain in Ceylinco Insurance PLC and a 12.65 rise in Aitken Spence Hotel Holdings helped boost the index with foreign investors buying a net 163.2 million rupees worth of shares.
The day's turnover was 565.3 million rupees, less than this year's daily average of around 828.4 million rupees. Last year's daily average turnover was 883.6 million rupees.
Analysts said many investors were not in the market due to the holiday mood, while large institutional funds were waiting for the new year to resume active trading.
($1 = 130.8250 Sri Lanka rupees)
(Reporting by Shihar Aneez; Editing by Sunil Nair)
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