Reuters - Sri Lankan shares posted their worst decline in nearly five months on Tuesday, as local investor sentiment remained muted, after a string of disappointing June-quarter corporate results.

However, foreign investors bought the island nation's risky assets, with offshore buying accounting for more than 80 percent of the session's turnover.

The Colombo stock index fell 0.69 percent, or 44.85 points, to 6,440.91, its lowest close since April 18. The index posted its steepest percentage fall since March 22.

"It was mainly on poor quarterly earnings. The retail segment is hit hard after the last-quarter floods. Banks are hit by non-performing loans and some companies are hit by rise in global commodity prices," said Atchuthan Srirangan, a senior research analyst at First Capital Holdings PLC.

"Local investors are waiting, but foreign investors are buying heavily because they see Sri Lankan bourse is under-valued compared to some other regional peers."

Foreign investors bought shares net worth 788.5 million rupees ($5.15 million) on Tuesday, extending the year-to-date net inflow to 27.6 billion rupees.

This accounted for about 82 percent of the day's turnover, which came in at 1.12 billion rupees, higher than this year's daily average of around 875.9 million rupees.

The stock market has posted losses in 12 out of the last 13 sessions, while yields on short-term government securities also fell over the past two weeks.

Sri Lanka's Supreme Court said early this month that a major tax reform proposed by the government cannot be passed into law in its current form, unless it is approved by more than a two-third majority vote in parliament and gets the greenlight from a nationwide referendum.

Shares in the market heavyweight John Keells Holdings fell 2.5 percent, while Ceylon Cold Stores fell 4.1 percent.

Shares in Pan Asia Banking Corp (PABC), which had its primary dealer status suspended by the central bank on Tuesday for six months, fell 0.7 percent.