Reuters - Sri Lankan shares fell on Wednesday to a more than one-year closing low, breaching a key psychological barrier of 6,000, as expectations of an interest rate hike continued to drag down the market ahead of the central bank's policy review.

The Colombo stock index closed down 0.7 percent at 5,996.65, its lowest close since March 15, 2016.

"The market came down mainly on margin calls," said Dimantha Mathew, head of research, First Capital Equities (Pvt) Ltd.

"Investors are expecting a rate hike, so local investors are on the sidelines and only foreign investors are active."

Sri Lanka's central bank could raise its key policy rates in the coming months if it skips a chance to tighten at its second monetary policy review of the year on Friday, a Reuters poll showed, two weeks after the International Monetary Fund called for further tightening.

Turnover was boosted by foreign-buying in conglomerate John Keells Holdings PLC and stood at 1.05 billion rupees ($6.9 million), well above this year's daily average of 672 million rupees.

The index has lost 1.8 percent since March 7, when the IMF called for monetary policy tightening if credit growth or inflation do not abate.

The bourse dipped into oversold territory on Wednesday, with the 14-day relative strength index at 26.758 points versus Tuesday's 34.145, Thomson Reuters data showed. A level between 30 and 70 indicates the market is neutral.

Foreign investors net bought shares worth 414.6 million rupees, raising the year-to-date net foreign inflow to 3.07 billion rupees in equities.

The treasury bill rates have risen between 33 to 77 basis points since July 28, when the central bank last raised the key interest rates.

Shares in John Keells fell 2.1 percent, while Asiri Hospitals Plc dropped 3.8 percent and biggest listed lender Commercial Bank of Ceylon Plc fell 0.9 percent.