Sri Lanka rupee down 3.1 percent after devaluation

Cenbank sets rupee at 113.50/90, from 110.00/40
    * Cenbank spends $15 mln to defend rupee-dealers
    * Bond investors struggle to exit

    COLOMBO, Nov 22 (Reuters) - Sri Lanka's rupee  fell nearly 3.1 percent on Tuesday as traders tested the lower limit of the trading range set by a state bank in the morning, to implement a 3 percent devaluation ordered by the president the day before.

The rupee closed at 113.89/90 rupees a dollar on Tuesday from Monday's 110.35/40, the level where it froze on Monday.Central Bank Governor Ajith Nivard Cabraal on Tuesday told Reuters the government had set the new lower rupee rate via the state-owned Bank of Ceylon, which was quoting 113.50/113.90 at
the start of trading.
   
President Mahinda Rajapaksa, in his capacity as finance minister, shocked the market by announcing the devaluation in his budget speech on Monday, which ground trading to a halt.
 
Two currency dealers Reuters spoke to said the central bank paid at least $15 million on Tuesday to defend the currency at the new level amid depreciation pressure as local and foreign investors tried to sell off rupee-denominated treasury bonds.
 
 "But there were no bids on the buying side on the bonds," one of the dealers said on condition of anonymity. Several dealers said some foreign investors tried to sell their bonds, but ran up against a lack of liquidity to cash out the investments and a minimal secondary market of buyers.
 
 The stock market, fell 0.96 percent or 58.91 points to 6,060.95 as many investors stayed away.

Heavyweight John Keells Holdings PLC, which contributed to 48 percent of turnover, ended flat at 175 rupees.
   
Analysts said the plantation sector index fell 3.01 percent after a budget proposal to redistribute 37,000 acres of unused state planting land to small farmers.
   
The day's turnover was 1.2 billion Sri Lanka rupees ($10.9 million), highest since Nov. 18 and less than last year's average of 2.4 billion and this year's 2.5 billion. Average turnover in the last 10 sessions has been 832 million rupees.
   
Total volume was 41.8 million shares, against a five-day average of 61.1 million. The 30-day and 90-day average trading volumes were 56.3 million and 101.8 million. Last year's daily average was 67.9 million.
   
The bourse has fallen 10.7 percent since Oct. 1 and it fell to Asia's 10th-best performer with a year-to-date loss of 8.7 percent after being on the top for most of 2011, and giving the best returns in Asia in 2009 and 2010.
 
 The bourse saw a net foreign outflow of 265 million rupees on Tuesday, and thus far in 2011, offshore investors have sold 17.2 billion, and a record 26.4 billion in 2010.
   
Losers outnumbered gainers by 152 to 35 on Tuesday, Thomson Reuters data showed.
                 
    FACTORS TO WATCH:
 - If the central bank can maintain a narrow dollar trading
range  
 - Rupee depreciation due to heavy importer dollar demand
 - Impact on the stock market due to acquisition bill
 - Impact on the 2012 budget