* Volume slumps to five-week low
* Sediment hit by interest rates, rupee volatility
* Rupee down on importer dollar demand
COLOMBO, May 21 (Reuters) - Sri Lankan stocks fell on Monday in thin volume as investors awaited direction on the political front from the release of former army chief Sarath Fonseka, who is President Mahinda Rajapaksa's highest-profile rival.
Sri Lanka's former army chief walked free from jail on Monday with a pardon from President Rajapaksa, who appears to have bowed to growing international demands.
The trading volume slumped to a five week low as investors stayed sidelined to see if there will be any significant changes politically after the release of Fonseka, who has been an ardent critic of Rajapaksa's economic policies.
"But Fonseka cannot do anything immediately, though the hype has boosted the market last week," said a stockbroker on condition of anonymity.
The main share index edged down 0.3 percent, or 14.37 points, to 5,207.72, led by financials with the second largest lender Hatton National Bank losing 1.8 percent.
The market jumped more than 2 percent on Wednesday on retail buying on the hope that the release of Fonseka would prompt more foreign inflows.
Analysts say the market is still concerned about economic woes on rising interest rates and rupee depreciation.
Turnover was 192 million rupees ($1.48 million), well below this year's daily average of 1.1 billion rupees.
The index is one of the worst performers among Asian markets, with a 14.3 percent loss so far this year.
The rupee ended down at 129.90/130.10 against the dollar from Friday's close of 129.60/80, on importer demand for dollars, dealers said. ($1 = 129.8000 Sri Lanka rupees) (Reporting by Shihar Aneez; editing by Ron Askew)
Reuters
