COLOMBO Aug 1 (Reuters) - Sri Lankan shares ended higher on Monday driven by foreign buying in Commercial Bank of Ceylon on hopes of higher profits after the recent policy rate hike announcement by the central bank.

Last week, the central bank raised its key interest rates by 50 basis points to more than two-year high each in a surprise move aimed at curbing stubbornly high credit growth that is adding to concern about inflationary pressures.


Top-listed lender Commercial Bank rose 3.1 percent as foreign investors bought more than 795,000 shares on a net basis.

Overseas investors were net buyers of 428.6 million rupees worth of shares on Monday, mainly due to foreign buying in Commercial Bank. However, they are net sellers of 4.22 billion rupees worth of shares so far this year.

"The margin between the deposit and lending rate is expected to increase after the rate hike. That means banks will have higher profit margins in this quarter," said Danushka Samarasinghe, research head, Softlogic Stockbrokers.

The benchmark Colombo stock index ended up 0.26 percent, or 16.55 points, at 6,410.42. The bourse lost 0.54 percent last week to post its first weekly fall in four.

Stockbrokers said the market is also awaiting an economic policy announcement from Prime Minister Ranil Wickremesinghe, scheduled for this month.


Turnover stood at 898.1 million rupees ($6.16 million), more than this year's daily average of around 726.6 million rupees.

($1 = 145.7500 Sri Lankan rupees) (Reporting by Shihar Aneez and Ranga Sirilal; Editing by Sherry Jacob-Phillips)