The benchmark All Share Price Index edged up 0.92 percent or 59.24 points to 6,493.58, while the Milanka Index of more liquid stocks edged up 0.
57 percent (0.57 points) to 5,928.45, according to stock exchange provisional figures.
Turnover was 1.99 billion rupees. There were 168 gainers and 69 losers.
On Tuesday debutant Browns Investments (BIL) closed 20 cents or 4 percent below its IPO price to close at 4.80 rupees with 74.7 million shares worth 81.3 million rupees changing hands.
Fifty million shares of Browns Investments were offered to the public at 5 rupees per share on June 23 and 830 million new shares were issued on private placement at 5 rupees per share on Feb 03, 2011.
Central Finance closed at 1445.
20 rupees up 34.60 rupees or 2.45 percent with 236,400 shares valued at 341 million rupees changing hands.
Swarnamahal Financial closed at 112.50 rupees up 3.80 rupees or 3.50 percent with 712,400 shares traded.
Arpico finance was the highest percentage gainer of the day closing at 104.50 rupees, up 13.60 rupees or 14.96 percent.
Tuesday’s crossings or off market private deals were John Keels Holdings 123,200 shares at 185 rupees, Central Finance 175,000 shares at 1450 rupees, Dialog 2500100 shares at 8 rupees and Softlogic Holdings one million shares at 23.
70 rupees.
"Forced selling brings the prices down sharply triggering more margin calls and forced sales," Capital Trust Stockbrokers, which has a large small investor base said in a report.
"This phenomenon was the main cause of the recent sharp declines in the market indices.
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Analysts have been warning since last October that Sri Lanka's stocks were overvalued and a correction was overdue when the island's price to earnings multiples overtook most of Asia.
Earnings of companies have since improved, bringing the market price to earnings multiple down to around 22 helped by higher corporate earnings and weaker prices, compared to levels of around 28 times seen late last year.
Credit driven speculative buying especially on illiquid stocks became common when foreign investors started to sell out of Sri Lanka from late last year. The regulator also clamped down on credit fearing a greater bubble.
Meanwhile Colombo's stock brokers want to meet with regulators later in the week in a bid to persuade regulators to relax credit rules, brokers said.