The rupee, which traded at 155.20 per dollar earlier in the session, closed at 155.75/85 per dollar, compared with Monday's close of 155.15/20.

The rupee gained 0.4 percent last week.

"There was (dollar) demand from a foreign bank in the latter part of the day to settle a share transaction. They did not cover the entire position today and we will see the demand tomorrow also," said a currency dealer.

On March 28, the Sri Lankan stock market saw the highest net outflow in the last nine years for which data is available, as LOLC Holdings (Private Ltd) bought a near 30 percent stake in its subsidiary, Lanka Orix Leasing Company Plc, from ORIX Corp of Japan.

Dealers expect pressure on the currency to ease with more inward remittances ahead of the traditional New Year in mid-April.

The currency has recovered and risen 0.7 percent since it hit a record low of 156.20 per dollar on March 16. The rupee has weakened 1.43 percent so far this year after declining 2.5 percent last year and 3.9 percent in 2016.

A gradual depreciation in the rupee and higher volatility are expected this year on account of debt repayments by the government, dealers have said.

The International Monetary Fund said on March 9 that Sri Lanka's economy remained vulnerable to adverse shocks due to its large public debt and low external buffers.

The government must repay an estimated 1.97 trillion rupees ($12.68 billion) in 2018 - a record - including $2.9 billion of foreign loans and a total of $5.36 billion in interest.

Foreign investors sold government securities worth a net 211.7 million rupees in the week ended March 21, central bank data showed.