The announcement that Norwegian-brokered talks would take place next month in Geneva reversed sharp falls on the stock market registered since President Mahinda Rajapakse came to power in November, traders said.

Norway's peace envoy Erik Solheim on Wednesday clinched a deal between the Tigers and the Colombo government to start talks to fully implement a truce Oslo had put in place in February 2002.

"I hope this is the start of good things to come," Solheim told Buddhist monks at a temple at Ambalangoda, southern Sri Lanka, on Thursday.

"We shouldn't see any Sinhala soldiers getting killed by claymore mines or innocent Tamil civilians being killed in the northeast.

"All forces should rally together to push the peace process forward," he said after re-opening the temple rebuilt with Norwegian aid following the devastating December 2004 tsunami.

The news of renewed talks gave the market a strong boost.

"The market is cheering yesterday's breakthrough," said Elton Ebert, a Colombo Stock Exchange trader. "This is the best news we have had in months."

"People are interested in getting back into the market," said Vajira Premawardhana, head of research at Lanka Orix Securities. "The bullish sentiment will continue, at least for a week."

Rajapakse's election saw the biggest fall on the market in a single day -- 6.8 percent. Shares progressively went down another 16.32 percent until Thursday's surge.

The benchmark All-Share Price index moved beyond the psychologically important 2,000 barrier to close at 2,118, up 7.57 percent, the stock exchange said.

Turnover more than doubled to 1.31 billion rupees (13 million dollars) from Wednesday.

Rajapakse won the presidency on a promise to adopt a brand-new peace process, but he made a U-turn and asked peace broker Norway to try to break the deadlock.

Mounting violence has left more than 150 people dead in the north and east since December.

The defence ministry said Thursday that 92 servicemen were among those killed, while 182 had been injured in attacks it blamed on the Liberation Tigers of Tamil Eelam (LTTE).

The breakthrough on Wednesday was hailed worldwide and Switzerland said it was ready to host the negotiations.

"Switzerland supports the peace process under Norwegian facilitation ... it has declared itself ready that talks between the conflict parties can take place in Switzerland," Bern's embassy said in a statement.

Sri Lanka said prospects of a slide back to war had subsided.

Government spokesman Nimal Siripala de Silva said Norway had managed a "major breakthrough" in a process that was threatened with collapse after Rajapakse came to power and violence escalated.

"This is a major relief to the government and to the citizens of Sri Lanka," de Silva said. "We are confident that the killings will now stop."

In Geneva, the two sides would initially debate strengthening the ceasefire and halting the killings, he said.

In a gesture to mark the breakthrough, the LTTE freed one Sri Lankan policeman, but Scandinavian truce monitors urged the guerrillas to free two others being held.

The LTTE seized the three in the north of the island when they strayed into a rebel-held area in pursuit of a suspected British paedophile last September.

"We would like to appeal to the LTTE to immediately release the other two officers," the Sri Lanka Monitoring Mission (SLMM) said.

The United States, which has banned the LTTE and described them as a "terrorist organisation", supported early peace talks and commended the Colombo government for showing restraint in the face of rebel attacks.

UN Secretary General Kofi Annan welcomed the Norwegian efforts in Sri Lanka.

Colombo and the Tigers had locked horns over a venue for talks, with the rebels insisting on Oslo. The new government wanted an Asian venue.

Four previous attempts at a peace agreement through negotiations have ended in failure.

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