The rupee closed at 178.20/50 per dollar, compared with Friday's close of 176.60/177.00, market sources said. Markets were closed on the island nation's independence day on Monday.

Rupee posted a weekly gain of 2.8 percent last week as exporters converted dollars and foreign investors purchased government securities after an IMF statement and government's $1 billion debt repayment boosted confidence.

The International Monetary Fund (IMF) on Jan. 16 said it would resume discussions in February for further disbursal of part of a $1.5 billion loan. The currency has appreciated 2.5 percent so far this year.

Investor confidence in Sri Lanka is stabilising after the country repaid a $1 billion sovereign bond in mid-January, Central Bank of Sri Lanka Governor Indrajit Coomaraswamy said last week.

Worries over heavy debt repayment after a 51-day political crisis that resulted in a series of credit rating downgrades

dented investor sentiment as the county is struggling to repay its foreign loans, with a record $5.9 billion due this year, including $2.6 billion in the first three months.

Fitch Solutions Macro Research, a subsidiary under Fitch Group on Thursday downgraded its average forecast for the rupee to 186.00 per US dollar for this year and 192.00 in the next year, from 177.00 and 183.00 respectively.

The rupee dropped 16 percent in 2018, and was one of the worst-performing currencies in Asia due to heavy foreign outflows.

The political crisis had dented investor sentiment and delayed Sri Lanka's borrowing plans.

Sri Lanka was plunged into political turmoil when President Maithripala Sirisena abruptly removed Prime Minister Ranil Wickremesinghe and then dissolved parliament.

Wickremesinghe was later reinstalled as premier. A court ruled the dissolution was unconstitutional.

The Colombo Stock Index ended 0.01 percent weaker at 5,981.65 on Tuesday. It declined 1 percent in January.

Turnover was 401.5 million rupees ($2.26 million), less than half of last year's daily average of 834 million rupees.

Foreign investors net sold 260.8 million rupees worth shares on Tuesday. They have been net sellers of 2.7 billion rupees worth of stocks so far this year, and 16.1 billion rupees since the political crisis began on Oct. 26, 2018.

The bond market saw an inflows of 924.7 million rupees in the week ended Jan 30, the latest central bank data showed.