March 30 (Bloomberg) -- Sri Lanka's economy probably expanded more than 6 percent for the second straight quarter on higher farm and garment exports and as roads and hotels damaged by the December 2004 tsunami were rebuilt.

The South Asian island's economy grew 6.1 percent in the fourth quarter from a year earlier, after a 6.4 percent gain in the third quarter, according to the median forecast of six economists in a Bloomberg News survey. The central bank is due to release the figures in Colombo tomorrow.

Sri Lanka's $20 billion economy has recorded uninterrupted expansion since a February 2002 cease-fire halted a two-decade civil war. The government is targeting growth of more than 6 percent in 2006, from higher revenues from tourism and export crops and infrastructure development, Treasury Secretary P.B. Jayasundera said on March 23.

``The economy can surpass 6 percent growth this year, unless there's outright war and disruption,'' said Rachini Rajapakse, who helps manage the equivalent of $20 million of stocks and bonds at Unit Trust Management Co. in Colombo. ``The economy is bouncing back after the tsunami.''

Sri Lanka may slide back to war following a suicide bombing of a navy gunboat on March 25 that killed eight sailors, the Norwegian-led Sri Lanka Monitoring Mission said. The monitors couldn't accept a denial by the rebel Liberation Tigers of Tamil Eelam of involvement in the attack off the northwestern coast of Sri Lanka, according to a March 26 statement.

Peace Talks

The Sri Lankan government and the separatist LTTE held their first meeting in three years in Geneva last month where they pledged to end violence and continue talks in the Swiss city on April 19-21.

Two months of violence in the island's north and east between government forces and the LTTE subsided after an agreement on Jan. 25 to hold talks. Progress on a peace settlement is a condition set by international donors on $4.5 billion in aid to Sri Lanka.

Sri Lankan President Mahinda Rajapakse won a Nov. 17 election on a pledge to renegotiate the cease-fire accord and provide subsidies to reduce the prices of essential food items.

``There was a slight slowdown in economic activity from the third quarter, because of elections and the heightened violence,'' said Vajira Premawardhana, director of research at Lanka Orix Securities Ltd. in Colombo. ``The more stable interest rate environment will help the growth momentum this year,'' he said.

Interest Rates

Sri Lanka may start lowering its benchmark interest rate in the second quarter to fuel growth as inflation slows, Treasury Secretary Jayasundera said on March 23.

The Central Bank of Sri Lanka on March 15 left the repurchase rate unchanged for the third month at 8.75 percent, after increasing it by 1.25 percentage points in four steps last year to curb inflationary pressures arising from higher bank lending and oil prices.

Sri Lanka's inflation rate slowed for the sixth straight month in February to 10.3 percent as prices of rice and vegetables declined due to favorable weather conditions, the Department of Census and Statistics said Feb. 28.

A quarter of Sri Lanka's 246 hotels were shut after waves triggered by an earthquake off Indonesia slammed into the island's coastline on Dec. 26, 2004, wiping out resorts and fishing villages. Tourist arrivals rose 40.2 percent in the first two months of 2006, according to Sri Lanka Tourist Board figures. The Ministry of Tourism expects arrivals to rise to 600,000 this year, after falling 3 percent to 549,308 in 2005.

Sri Lanka's export earnings rose to a record $625 million in December as the South Asian island shipped more clothes and rubber-based products, the central bank said last month.

President Rajapakse, who is also finance minister, is aiming to boost annual economic growth to 8 percent in the next six years. The central bank has forecast the economy will expand 6 percent in 2006, the fastest pace in three years, from an estimated 5.5 percent in 2005.

Table of forecasts

---------------------------------------
                                   GDP
Forecaster                         YoY
---------------------------------------
Median                            6.1%
Average                           6.0%
Number of Forecasts                  6
---------------------------------------
HNB Stockbrokers                  6.0%
John Keells Stock Brokers         6.2%
Lanka Orix Securities             5.5%
National Asset Management         6.0%
Natwealth Securities              6.2
Unit Trust Management             6.2%
---------------------------------------

To contact the reporter on this story: Anusha Ondaatjie in Colombo, Sri Lanka at anushao@bloomberg.net.

Last Updated: March 29, 2006 13:01 EST