The All Share Price Index rose 0.47 percent (11.71 points) to end at 2,485.28 while the more liquid Milanka rose 0.
89 percent (24.55 points) to close at 2,773.63, according to provisional stock exchange figures.
Turnover was 658 million rupees.
Srimal Liyanage, head of research at Lanka Securities, said investors were upbeat over the government clinching a 2.
5 billion dollar International Monetary Fund loan.
"The IMF loan helps improves the country's image as it implies that the situation is improving," he said. "It gives confidence to investors.
"
But he said foreign investors had still not started investing in the Colombo bourse in a big way, probably as they were still assessing the coutry risk.
Despite the IMF loan, foreign investors still appeared to lack confidence as there appeared to be concerns about the government's ability to handle the economy properly, ensuring stable growth.
"The positive momentum is still there although can be fluctuations in the share market because of profit taking," said Liyanage.
"But the long-term trend would be positive as we have got the IMF loan and most of the negative factors are over. The only doubt would be how the government manages the economy in future.
"Investors would be looking at government policies, especially taxation, and also assessing the political situation,"
Lanka Cement was the most actively traded stock on speculation about future earnings potential with several foreign cement companies looking to revive its defunct plant in northern Jaffna which sits on a rich limestone deposit.
The stock closed at 36.75, up 4.25 or 13 percent, the day's highest gainer, with over 1.9 million shares changing hands.
If Lanka Cement manufactures and distributes cement locally its margins will be higher than Tokyo Cement, the other listed cement maker, which imports some of its cement and raw material.
"The country will have a very high need for cement in future especially when development starts in the north and east," said Liyanage. "Margins are higher when cement is made here.
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Overseas Realty closed at 14.50 rupees, up 0.75 cents, with over 1.5 million shares traded.
Investors were betting that its big Havelock City property project in the heart of Colombo would yield strong earnings in future.
There were two crossing, or off-the floor-negotiated deals, of John Keells Holdings of 125,000 and 200,000 shares traded at 135 rupees each, one crossing of 500,000 Distileries at 88 rupees a share and a crossing of 85,000 Ceylon Tobacco Company at 122 rupees a share.