Reuters - Sri Lankan shares posted their lowest close in nearly one week in low trading on Thursday as local investors booked profits while foreign players bought into risky assets, limiting the decline.

The Colombo stock index ended 0.11 percent weaker at 6,738.42, declining for the third straight session.

"Local retail profit-taking brought the market down," said Hussain Gani, deputy CEO of Softlogic Stockbrokers.

The market could see a rising trend if yields on fixed-income securities fall as expected by the central bank, said analysts.

The central bank expects a further fall in T-bill yields due to less pressure from government borrowing and a proposed new auction system, Deputy Governor Nandalal Weerasinghe said on Wednesday.

Foreign investors were net buyers of shares worth 166.3 million rupees ($1.08 million), extending the year-to-date net foreign inflow to 23 billion rupees worth of equities this year.

The day's turnover was 489.4 million rupees, compared with this year's daily average of 906.6 million rupees.

New foreign investors have been buying Sri Lankan shares since the Pakistani bourse was upgraded as an emerging market from a frontier one, said analysts.

Brokers said domestic investors have been waiting for clarity on the proposed inland revenue legislation, which some companies expect would result in higher costs of production.

The IMF, which has long urged Sri Lanka to boost tax revenue through modernisation and simplification of its fiscal system, has urged the government to submit to parliament a new Inland Revenue Act.

Shares of conglomerate John Keells Holdings Plc closed 0.1 percent lower, Trans Asia Hotels Plc fell 5.5 percent and Commercial bank of Ceylon Plc, the country's biggest listed lender, ended 0.3 percent weaker.