The All Share Price Index fell 1.47 percent (30.03 points) to 2,013.10 while the more liquid Milanka was down 1.
25 percent (28.31 points) to 2,231.09. Turnover was 143 million rupees.
"Most blue chips came down although total volumes were not that high today," said Geeth Balasuriya of HNB Stockbrokers.
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Distilleries Company fell sharply - down almost eight percent (5.25 rupees) to 60.50 rupees as investors fear it could be affected by an adverse court verdict.
Brokers said investors were worried that Distilleries' acquisition of Sri Lanka Insurance Corporation in a privatization deal that has been challenged in court may be reversed.
A court order is pending.
Distilleries fell down to 52 rupees but recovered after bargain hunting came in.
Sri Lanka's supreme court has reversed two similar deals in recent weeks, the most recent being the Water's Edge case - the sale of state land near the capital to a private business which the court ordered to be returned to a government agency.
Market heavyweight John Keells Holldings (JKH) also fell Thursday, down 2.50 percent (two rupees) to 78 rupees with just over a hundred thousand shares done.
The stock has been sliding ever since the supreme court ruled in August that its acquisition of a state bunkering firm was flawed and ordered it to return the fuel storage tanks that had given JKH a competitive edge over rival suppliers.
The Colombo market sank below 2,000 points on the ASI at one point but recovered.
"Sentiment remains weak and the indices could go down further," said Balasuriya of HNB Stockbrokers.
Economic and company fundamentals remained shaky with inflation and interest rates still high and corporate profitability being eroded.
"Corporate earnings have started to come down in the last two quarters," said Balasuriya. "The July-September quarter would not be good as interest rates, inflation and oil prices were high.
So we cannot expect good earnings.
"
Balasuriya said that for the sock market to recover interest rates would have to ease.
"The market downturn started with interest rates going up. So for the market to regain its attractiveness interest rates have to come down.
"
He said the forthcoming government budget to be presented in November could provide some direction to investors, as would continued gains by the military in its campaign against the Tamil Tigers.
"How the government bridges the budget deficit is important as that will have an impact on interest rates.
So if we see some fiscal discipline (in the budget) and then with expectations of more military victories, we may see the market pick up."