* Stocks, currency surge as 25-year civil war ends
* Colombo All-Share index jumps 7 pct to 7-month high
* Rupee up over 2 pct to 1-month high
* Cenbank expects quick donor inflows (Adds rupee close, cenbank comments)
By Shihar Aneez
COLOMBO, May 18 (Reuters) - Sri Lankan shares and the rupee surged on Monday after the military announced it had defeated Tamil Tiger rebels in a civil war dating back to 1983.
The Colombo All-Share index jumped 7.14 percent before closing 6.46 percent or 123.23 firmer to a seven-month high of 2,030.90, its biggest daily percentage rise since Jan. 26, 2006.
"Investors are aware of the country's financial crisis and other problems, but the boom is due to the end of a long-fought war," said Hussain Ghani, associate director at Asia Securities.
The Tamil Tigers conceded defeat in Asia's longest-running conflict on Sunday. [ID:nCOL67021]
Sri Lankan special forces troops killed Tamil Tiger leader Vellupillai Prabhakaran as he tried to flee the war zone early on Monday in the final battle, the military said. [ID:nCOL131422]
Top conglomerate by market capitalisation, John Keells
Holdings
Market heavyweight Sri Lanka Telecom
Market turnover was 1.23 billion rupees ($10.7 million), three times last year's daily average volume.
The rupee rose 2.43 percent to a one-month high of 114.90/115.10, before closing 115.00/20, up from Friday's close of 117.70/90 .
"Exporters, banks and all traders are selling dollars due to the market confidence on the war-end sentiment," said a currency dealer. "The market thinks that a high volume of donor funds could make the rupee stable soon."
Currency dealers said Sri Lanka's President and Finance Minister Mahinda Rajapaksa last week had urged banks to keep the rupee steady at 115.00 to curb the cost of living
Analysts said the end of the conflict could bring an inflow of dollars from donor nations to pay for post-war reconstruction. That would bolster low foreign exchange reserves, which barely cover six weeks of imports.
The central bank said it expects economic stability with expected inflows.
"We expect the stability in shares and rupee to continue," said the Central Bank Governor Ajith Nivard Cabraal. "We will see donor funds, diaspora investments, and large sum of money for rehabilitation and reconstruction as well very quickly."
Sri Lanka's government bond yields fell by around one percentage point on Monday, on expected foreign exchange inflows from donors and others, including the IMF, which had withheld funds on concerns about the conflict and civilian deaths in the war zone, dealers said.
Analysts said market fears a $1.9 billion International Monetary Fund loan would not come through had eased. The United States, Britain, France and the United Nations have all been putting diplomatic pressure on Sri Lanka, including threats to delay the IMF loan, until there was a solution to the war.
"I have confidence in the IMF that it would do the right thing and disburse the loan," Cabraal said. (Editing by Chris Pizzey)