COLOMBO, March 17 (Reuters) - Sri Lankan shares gained for the second session on Thursday at their highest in two weeks as investors bought beaten-down stocks, but concerns over a higher budget deficit and economic growth dampened investor sentiment, brokers said.
The benchmark share index was up 0.78 percent, or 47.15 points, at 6,068.52 at 0711 GMT, its highest since March 3.
Investors preferred fixed interest rate bearing assets over shares due to a rise in yields on treasury bills, which are hovering at two-year highs, and on the central bank's unexpected interest rate hike in mid-February, dealers said.
"Despite the negative outlook, it seems that a part of the recovery is driven by new investors who have entered the market," said Danushka Samarasinghe, research head, Softlogic Stockbrokers.
Sri Lanka's economy is expected to grow 5.3 percent in 2016, data from the state statistics office showed, but analysts say tight monetary and fiscal policies may curb its growth.
The $82.2 billion economy expanded at a sluggish 2.5 percent in the December quarter, down from an upwardly revised 5.6 percent in the previous quarter.
Analysts and economists worry slower growth could reduce corporate earnings of some listed firms.
Turnover stood at 1.15 billion rupees ($7.94 million).
The central bank rejected all bids at a weekly T-bill auction on Wednesday for the second week after yields on short tenure bonds hit two-year highs.
The rupee traded weaker, currency dealers said. One-week rupee forwards, which act as a proxy for the spot currency, traded at 145.50/60 per dollar, as compared with Wednesday's close of 145.45/55 at 0727 GMT.
The spot currency did not trade below 143.90, which is seen as the central bank's desired level.
($1 = 144.9000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sherry Jacob-Phillips)