The island's main share index closed 111.34 points weaker at 7,345.48, its lowest since March 31. It hit a record closing high of 7,811.82 on Feb 14.
Analysts said up coming IPOs from conglomerate ExpoLanka and speculation that conglomerate Softlogic Holdings is planning a listing resulted in retail profit-taking as investors sold their shares to raise cash.
A report by a UN-appointed panel, which found "credible allegations" of war crimes in the final months of Sri Lanka's war discouraged buying, hitting volume and turnover, analysts said.
Turnover was 1.52 billion Sri Lanka rupees ($13.8 million), well below last year's average of 2.4 billion and less than this year's daily average of 3 billion.
Traded volume was 39.8 million against a five-day average of 62.3 million shares. The 30-day and 90-day average trading volumes were 54.1 million and 64.6 million, respectively. Last year's daily average volume was 67.9 million.
Foreign investors bought a net 72 million rupees' worth of shares for the first time in six sessions. They have sold a net 7.55 billion in 2011, and a record 26.4 billion in 2010.
The bourse is still Asia's best performer in 2011 with a 10.7 percent gain, after bringing in the region's top return of 96 percent last year.
The rupee closed weaker at 110.19/20 a dollar from Thursday's 110.05/10 on importer dollar demand, dealers said. Both markets were closed for a holiday on Friday. The central bank has forecast further appreciation this year.
FACTORS TO WATCH:
- The extent of the rupee rise the central bank will allow
- If the central bank's monetary tightening signal prompts investors to shift funds to fixed assets from the bourse
- If Sri Lanka can achieve an 8.5 pct growth target amid rising global oil prices and inflation