COLOMBO, March 16 (Reuters) - Sri Lankan shares gained on Wednesday to end at their highest in more than a week as investors bought beaten-down stocks, but concerns over a higher budget deficit and economic growth dampened investor sentiment, brokers said.

Sri Lanka's share trading was halted for 17 minutes in early trade due to a power failure.

The benchmark share index ended 0.85 percent up at 6,021.37, its highest close since March 4.


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 uncertainties, the market ended up. Selling pressure was absorbed for the day, but it is difficult to say for how long," said Dimantha Mathew, head of research, First Capital Equities (Pvt) Ltd.

"Selling pressure is still there as investors are waiting to see the direction of the economy. At the moment, there is a gloomy economic outlook."

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 921.9 million rupees, more than this year's daily average of 777.4 million rupees.


Foreign investors sold 221.4 million rupees ($1.53 million) worth of shares on Wednesday, extending the net foreign outflow so far this year to 656.8 million rupees worth of shares.

Shares in Lanka ORIX Leasing Company Plc jumped 6.41 percent, while Hemas Holdings Plc rose 2.15 percent and Sri Lanka telecom Plc rose 2.60 percent.

The central bank rejected all bids at a weekly t-bill auction on Wednesday for a second week after yields on short tenure bonds hit two-year highs after the central bank's unexpected hike in interest rates in mid-February.

"The rejection is to curb the high yields, but this is not sustainable as the government's short term financing including the maturing treasury bills would put more pressure on the government finances," said Shiran Fernando, an analyst at Colombo-based Frontier Research. ($1 = 144.8500 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sunil Nair)