UPDATE 2-Sri Lanka SEC head resigns, blames powerful traders

(Adds analyst quotes, official quote)

By Shihar Aneez and Ranga Sirilal

COLOMBO, Aug 17 (Reuters) - The head of Sri Lanka's Securities and Exchange Commission resigned on Friday, saying he had come under pressure from stock market players under investigation for stock manipulation making false allegations against him.

Tilak Karunaratne's resignation was the second in less than nine months after his predecessor left amid complaints from brokers that tougher regulations were hurting stock prices.

"Just about half an hour ago, I have sent it," Karunaratne told Reuters, referring to his resignation letter.

The SEC chief had been pushing investigations into stock market malpractice, including so-called pump-and-dump deals in which investors are lured into apparently cut-price equities.

"I don't even call them investors. They are crooks. The pressure from those crooks goes elsewhere and then in turn that party is exerting pressure on me," Karunaratne said. He did not elaborate.

Sri Lanka's stock market has fallen more than 20 percent since the start of the year.

The Finance Ministry said Karunaratne's resignation had yet to be accepted.

Last month, President Mahinda Rajapaksa, who is also the finance minister, met Karunaratne, high net worth investors and top Colombo Stock Exchange officials to discuss the persistent weakness in the market.

Analysts said the resignation of the SEC head could make matters worse.

"The signals are not good and this will affect the market's integrity," said an analyst on condition of anonymity. "This means the group of investors behind forcing Karunaratne out will not want any future SEC head to investigate anything."

Some stockbrokers said his resignation would come as a relief.

"Investors and stockbrokers were intimidated under this SEC chairman," said a CEO of a local brokerage, asking not be identified. "...Nobody wants to be in the market if he or she is embarrassed with such intimidation." (Reporting by Shihar Aneez and Ranga Sirilal; Editing by Nick Macfie)