The All Share Price Index closed at 6,454.18, down 0.95 percent (61.62 points) while the Milanka index of liquid stocks dipped 1.
38 percent (97.55 points) to close at 6,980.39, according to stock exchange provisional figures.
Turnover was 1.2 billion rupees. There were 36 gainers and 163 losers.
“The market is going through a credit adjustment at the moment and I believe this trend will continue for awhile,†Thakshila Hulangamuwa of Asha Phillips Securities said.
Investors have been staying out of the market expecting falls in future following a ban on stock brokers extending credit beyond January 01, 2011.
The government budget for 2011, presented Monday, also announced a 0.2 percent tax on stock trading will be raised to 0.
3 percent because there were no capital gains taxes.
There was a lot of trading Tuesday in banking sector stocks which are expected to benefit from tax cuts announced in the government budget.
"Across-the-board interest was shown in the banking sector following the positive impact of the budget on the sector," Thilini Yatawara of Bartleet Mallroy Stockbrokers said.
Among banks, Sampath closed at 265.70, down 0.60 cents, Commercial Bank closed at 270.
00, down 3.80 and DFCC closed at 200.80, down 7.00 rupees.
John Keells Holdings closed at 295.40, down 4.60 rupees while Hayleys closed at 345.
10, down 4.90 rupees.
Piramal Glass Ceylon closed flat at 5.
60 with 4.1 million shares changing hands.
(Ends)