The benchmark Colombo All Share Price Index closed up 1.
99 percent (47.94 points) to end at 2,451.91 Friday while the Milanka index of liquid stocks gained 1.86 percent (50.50 points) to close at 2,763.59, according to provisional stock exchange data.
Turnover was 1.88 billion rupees.
"In the last month or so when the market gained foreigners were net sellers, but now we're seeing a reversal of the trend," Geeth Balasuriya, research manager at Acuity Stockbrokers.
Foreign investors were net buyers for 3.2 million rupees, buying 798.7 million worth shares and selling shares valued at 795.5 million rupees, brokers said.
"We see active foreign participation on the back of the attractive valuation in the market," Balasuriya said.
"I believe at the moment the market is going through a re-rating and we could see the trend continuing considering the current P/E (price to earnings ratio).
At the end of trade on Friday, the market price to earnings multiple was 10.4 times on past earnings. This was up from 8.7 at end May. In January it was only 5.4 times.
The earnings multiple is an indicator of the years taken to recoup the price paid to buy a stock, but fast growing firms have higher multiples because profits are expected to grow faster in the future and bring the multiple down.
A rise in the market earnings multiple is an indicator of optimism on overall economic conditions. Falling profits of companies can also push the earnings multiple up temporarily.
"Blue chip counters such as John Keells Holdings (JKH), National Development Bank (NDB) and Commercial Bank are likely to attract foreign interest," said Balasuriya.
Brokers said over 3.4 million JKH shares changed hands.
Index heavy conglomerate JKH which has business interest in transport, property development, finance, food processing and retail sectors closed at 138.
00 rupees, up 75 cents.
During this week JKH had gained 22.
00 (18.9) rupees, brokers said.
NDB closed at 150.75 rupees, up 5.25 while Sri Lanka’s largest privately held bank, Commercial Bank of Ceylon closed 139.25 rupees, up 3.75.
Brokers said a 1.93 million block of Richard Pieris and Company shares changed hands on a off-the floor deal at 40.00 rupees per share.
Diversified Richard Pieris closed at 40.
25 rupees, up 2.25 Friday.
Dialog Telekom, a unit of Telekom Malaysia closed flat at 5.
25 rupees, while fixed line operator Sri Lanka Telecom closed at 49.50 rupees, up 2.25.
Index heavy Distilleries Company of Sri Lanka, a unit of the Stassens Group controlled by business tycoon Harry Jayawardena closed at 85.75, up 4.25, while Aitken Spence, another company controlled by the Stassens Group closed at 640.
00 rupees, up 10.00.
Diversified Hayleys closed at 127.50 rupees, up 5.50 on Friday.
Asian Alliance (an insurer) closed at 49.00 rupees, down 2.25 on razor thin volumes, while Ceylon Tobacco Company a unit of multinational British American Tobacco closed at 112.00, down 2.00.
The spot dollar remained unchanged at 114.90/95 rupees in late afternoon trade, dealers said.