Sri Lankan shares retreated today after closing at a record high in the previous session on growing political concerns after the ex-army chief was arrested for on charges of conspiring against the president.

The All-Share Price Index CSE of the Colombo Stock Exchange closed down 0.11 percent or 4.09 points at 3785.28, after rising 0.26 percent in early trade a day after former army commander General Sarath Fonseka was arrested.

Stocks, which had fallen as much as 1.3 percent after news of the arrest, recovered some of their losses on bargain buying by some investors, analysts said.

"Fonseka's arrest will not have a market impact on the short term, but in the long term there might be problems," said an analyst on condition of anonymity.

"We might face a problem specially with regard to future foreign investment if international community viewed this as a right abuse and control of dissident voice."

Analysts said if the arrest creates more road protests, there is a possibility of erosion in post-war optimism, which helped the bourse to be one of the world's best performers in 2009 with over 125 percent jump. (Reuters)