The rupee opened at 117.05/117.25 and fell to 117.25/0117.45 levels by late afternoon trade.
In the stock market the All Share Price Index closed down 0.60 percent (11.47 points) to end at 1,888.62 while the Milanka index of liquid stocks closed up 0.
14 percent (2.80 points) to end at 2,051.53, according to provisional stock exchange figures.
Turnover was almost 180 million rupees.
"The concerns over the IMF facility and profit taking dragged the market down," said Geeth Balasuriya of Acuity Stockbrokers.
"However, during latter part of the day the indices recovered on bargain hunting by mainly retail investors."
British Foreign Secretary, David Miliband, indicated Britain does not support Sri Lanka's request for the IMF loan when he spoke to the media about the situation in the island ahead of a meeting at the United Nations on Monday.
"In respect of the IMF, I think you'll find that the issue is not coming up at the IMF today," Miliband said when asked whether the UK supports the IMF loan application by Sri Lanka.
"It's essential that any government is able to show that it will use any IMF money in a responsible and appropriate way and, as I explained in the House of Commons last week, I don't think that is yet the case."
Britain and other Western powers and Sri Lanka's main aid donors have been pressing for a halt to the government offensive against the Tamil Tiger remnants to try to avoid civilian casualties.
Trading in Janashakthi Insurance shares was temporarily halted on the Colombo bourse after the Insurance Board of Sri Lanka suspended its licence for three weeks and stopped it from issuing new general and long term (life) insurance policies.
Janashakthi closed flat at 8.00 rupees.
Conglomerate John Keells Holdings, which has interests in finance, transport, property development, food processing and retail sectors, lost 25 cents to close at 77.00.
Market index heavy fixed line giant Sri Lanka Telecom lost 25 cents to close at 39.00.
National Development Bank lost 2.25 rupees to close at 93.00, while Hatton National Bank lost one rupees to close at 94.00.
Tokyo Cement lost 4.00 rupees to close at 135.00 on thin volume trade.
Sri Lanka's largest privately held bank, Commercial Bank of Ceylon, lost 2.
00 rupees to close at 94.00.
Ceylon Tobacco Company, a local unit of British American Tobacco lost 3.
75 rupees to close at 115.25, while Distilleries Company of Sri Lanka gained 1.75 rupees to close at 82.25.