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Analysts say excess liquidity amid dollar tightness is usually a sign that the government is in a cash crunch.
The latest official data shows that Sri Lanka spent 1,056 million dollars intervening in forex markets in the past three months.
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The rupee has been slowly adjusting after central bank intervention was eased earlier in the month.
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Early on Tuesday the spot dollar opened around 112.95/113.15 rupees but weakened rapidly with buying interest coming from state names.
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"With state names buying, small names rushed to cover their positions," a dealer said.
The inter bank market is liquid with overnight rates falling to 13.
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00/14.00 percent levels with excess cash around 6 billion rupees in the past few days.