Feb 10 (Reuters) - The Sri Lanka rupee was steady on Monday on a lack of dollar demand for imports in a thinly traded session.
Dealers however said they expect mild volatility in the currency in the short term before falling on seasonal importer dollar demand in March.
The spot rupee was at 130.65/75 per dollar at 0636 GMT, little changed from its Friday close of 130.60/70.
"If this scenario continues, the rupee may even appreciate in the coming days," a dealer told Reuters on condition of anonymity. "But we expect the currency to depreciate due to possible increase in credit growth due to the current lower interest rates with importer demand picking up on seasonal imports in March."
Five dealers Reuters spoke to said the market is yet to see the impact of inflows from the foreign buying in government securities as reported by the central bank last week.
Foreign investors bought 15.57 billion rupees ($119.17 million) worth of government securities from Jan. 29 to Feb. 5, after selling a net 951 million rupees worth the week before, the latest central bank data showed.
The new buying increased foreign holdings of government securities the week ended on Feb. 5 by 3.2 percent to 497.46 billion rupees.
Dealers expect the central bank to keep the currency between 130.65 and 130.85 until depreciation pressure comes in.
Dealers still see downward pressure on the currency because of the Federal Reserve's decision to cut stimulus further and a U.S. statement on bringing in another U.N. resolution against Sri Lanka could also weigh on the rupee.
Central Bank Governor Aitch Niggard Caracal on Jan. 27 said Sri Lanka should not experience any major capital outflows or market volatility due to the Fed stimulus cut.
The rupee has gained about 3.4 percent since it hit a record low of 135.20 on Aug. 28. It lost 2.5 percent in 2013.
At 0644 GMT, Sri Lanka's main stock index was down 0.41 percent, or 24.95 points, at 6,116.77, its lowest intraday level since Jan. 13, despite a series of better-than-expected earnings by listed firms last week.
Market heavyweight Ceylon Tobacco Company PLC, which posted a 27.2 percent rise in December-quarter earnings, was down 0.19 percent at 0636 GMT, while conglomerate Aitkin Spence was up 1.28 percent after it reported a 54 percent increase in December-quarter earnings on Friday.
Stockbrokers said investors are concerned over foreigners exiting risky assets. Foreign investors sold a net 3.42 billion rupees ($26.16 million) in stocks in the last two sessions of the last week. ($1 = 130.7500 Sri Lanka rupees) (Reporting by Shihar Aneez and Ranga Sirilal; Editing by Sunil Nair)
