Excess liquidity in the banking system fell to 49.1 billion rupees on Wednesday, down from 59.31 billion rupees the previous day with outright sales of Treasury bills.
The move will help lock up forex reserves and strengthen the rupee, analysts said.
The benchmark Colombo All Share Price Index (ASPI) closed 2.54 points higher at 5,786.16, up 0.04 percent, provisional data showed. The S&P SL20 closed 13.61 points higher at 3,219.09, up 0.42 percent.
Turnover was 920.23 million rupees, up from 582.78 million rupees a day earlier with 115 stocks losing ground and 55 firms making gains.
Foreigners bought stocks worth 267.34 million rupees, down from 285.44 million a day earlier, against sales worth 34 million rupees, down from 173.57 million rupees.
Carson Cumberbatch which closed 18.70 rupees higher at 389.90 rupees and Commercial Bank closed 1.70 rupees higher at 117.70 rupees contributed most to the index gain, stock exchange data showed.
Bukit Darah closed 10.50 rupees higher at 663.00 rupees and AIA Insurance closed 31.50 rupees higher at 305 rupees.
LOLC closed 1.20 rupees higher at 55.30 rupees.
Sri Lanka Telecom which lost 1.00 rupee to close at 39 rupees. CTC closed 40 cents lower at 1,040.60 and Distilleries closed 1.80 rupees lower at 183.20 rupees.
Browns Investments closed 20 cents lower at 2.40 rupees and Sampath Bank closed 2.00 rupees lower at 170.00 rupees.
Speculative play was evident with more than 48.78 million Touchwood shares changing hands during the day, closing 1.50 rupees higher at 5.00 rupees.
CIFL saw more than 8.6 million shares change hands, closing 20 cents higher at 1.50 rupees.
HNB closed flat at 150.00 rupees and LIOC also closed unchanged at 25 rupees and JKH closed 20 cents lower at 222.70 rupees.
The dollar was trading in at 131.90/132.00 rupees in the spot market amidst low volumes, the forex market was quiet, dealers said after the dollar opened at 131.95/132.05 rupees.
No trades are taking place above 132.00 on central bank moral suasion, but import demand and dollar sales were subdued on Thursday, dealers said.