Sri Lankan shares ended slightly higher after hitting one-month lows on Thursday, but concerns over political stability weighed on sentiment as investors awaited the new government's interim budget scheduled for next week.
The main stock index fell 1.37 percent to a one-month low of 7,223.92 in early trade, a day after the government reappointed Thilak Karunaratne as head of the market regulator and said he would investigate suspected deals in the stock market.
The index ended 0.07 percent higher, or 5.19 points, at 7,329.59. It closed at its lowest since Dec. 31 in the previous session.
"There was panic selling in the morning with the announcement of new SEC chairman. But it recovered later in the day, though there is no concrete buying yet," said Dimantha Mathew, research manager at First Capital Equities (Pvt) Ltd.
After the market close on Wednesday, a government minister said the new administration had reappointed Karunaratne as chief of the Securities and Exchange Commission (SEC).
Karunaratne has been tasked with investigating past stock market deals suspected to involve corruption.
Stockbrokers said Karunaratne's appointment and the investigations would pull down the index in the near term, but would instil confidence over the long term.
"Most of the uncertainty will be settled after the budget next week," Karunaratne told Reuters, adding he would not be "on a witch hunt", while the investigations into alleged corrupt deals would go through.
President Maithripala Sirisena's coalition has promised a 100-day programme to restore democracy and reform the economy before he dissolves parliament for a general election after April 23. It will present an interim budget on Jan. 29 with an aim to cut cost of living.
Shares in Ceylon Tobacco Company Plc rose 2.05 percent, while top conglomerate John Keells Holdings Plc fell 1.39 percent.
Foreign investors, who bought a net 22.07 billion rupees worth of stocks last year, were net buyers of 86.6 million rupees worth of shares on Wednesday. ($1 = 131.8500 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anand Basu)