By Ranga Sirilal and Shihar Aneez
COLOMBO (Reuters) - Thousands of Sri Lankans, protesting the arrest of losing presidential candidate Sarath Fonseka, clashed with government supporters on Wednesday, a day after parliamentary elections were called.
Tensions have risen on the island since former army commander Fonseka was arrested on Monday by military police on charges of engaging in politics against his president while still in uniform.
Analysts said street protests leading up to parliament elections set for April could put off foreigners looking to invest in Sri Lanka's post-war economy.
Fonseka and President Mahinda Rajapaksa worked together in ending the 25-year war against Tamil Tiger separatists last year, but fell out soon after.
"We came here to do a peaceful protest against the arrest of (Fonseka), but government thugs attacked us," said K.H. Indrani.
"They stoned us and attacked with clubs and even threw glass bottles at us in front of these police force," she said, pointing at riot police.
At least eight people were injured in the clashes outside the island nation's Supreme Court, officials said. Police fired tear gas to disperse the crowds.
The protests erupted a day after Rajapaksa dissolved parliament and called early elections, hoping to build on his own victory in the presidential poll last month.
The police said they had also used tear gas in another two cities in the south and one in the east to disperse protesters.
Analysts said the opposition will try to use the arrest of Fonseka as a rallying point to regroup in the parliament election set for April 8, but it would be a long haul.
"I don't see the agitation going forward aggressively," said Kusal Perera, a political analyst at Center for Social Democracy. "The opposition does not have the capability of mobilizing people at grass root level."
Street protests, strikes, and labor unrest could have a ripple impact on Sri Lanka's $40 billion economy, which is poised to grow over 6 percent this year due to post-war economic optimism and high foreign investments.
"If these protests persist even after the election, then that would increase the risk profile of the country in the eyes of international investors," said Danushka Samarasinghe, a consultant at Frands Consultants.
The opposition said it would continue with the protests against Fonseka's "illegal" arrest.
"We will keep agitating, because there is no basis for his arrest," said Ranil Wickremesinghe, the opposition leader. "We demand his release immediately."
Despite opposition complaints and protests, Sri Lankan stock markets have climbed to record highs since Rajapaksa's landslide re-election.
On Wednesday the stock market hit a new high in early trade, but slipped 0.3 percent by the end of trade. However, other South Asian markets fell more sharply.
The country could issue its third international bond later this year, and sees scope to ease monetary policy and raise its GDP growth forecast, central bank governor Ajith Nivard Cabraal told Reuters and Reuters Insider TV in an interview on Tuesday.
Fonseka lost by an 18 percentage point margin to President Rajapaksa in the January poll, after which he accused his former commander-in-chief of rigging the vote.
The government has said Fonseka would be court-martialled on charges of conspiring against the president.
Under Sri Lankan military law, the armed forces can arrest and try personnel who have left service for up to six months after their departure.
(Writing by Sanjeev Miglani; Editing by Jerry Norton)