Sri Lanka shares continue falling

Raj Rajaratnam (centre) is accused of insider trading in 2007

Sri Lankan shares have fallen sharply as the fallout from the arrest of Sri Lanka-born billionaire Raj Rajaratnam continues to shake investor confidence.

The European Union's warning on Monday that the country could lose special trading rights because of its human rights record also weighed on shares.

The Colombo Stock Exchange lost a further 3.1% after Monday's 1.6% fall.

Mr Rajaratnam was arrested in New York on Friday, charged with making millions of dollars from illegal trades.

Investors fear that Mr Rajaratnam will be forced to sell his extensive holdings in Sri Lankan companies, which could cause their shares to fall in value.

US prosecutors claim that Mr Rajaratnam and five other investors secured inside information regarding firms including Google, AMD and Hilton Hotels.

The others charged in the case were Rajiv Goel at Intel Capital, Robert Moffat at IBM, Anil Kumar at McKinsey & Co, and Danielle Chiesi and Mark Kurland of New Castle Partners.

The insider trading is said to have taken place between January and July 2007.

Meanwhile, a year-long inquiry by the EU revealed "significant shortcomings" in Sri Lanka's human rights efforts.

As a result, the European Commission said it would ask the 27 EU member states if it should suspend trade privileges.

The EU is Sri Lanka's largest export market, with textiles alone earning the country $3.5bn (£2.1bn) in 2008.