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A lorry loaded with explosives crashed into the central bank in the heart of Colombo's financial district.
The authorities said the explosion, which ripped through the business district at 1100 local time was the work of the separatist Tamil Tigers.
The group's fight for an independent homeland has resulted in the deaths of nearly 40,000 people over the last 12 years.
It is believed that the intended target was the neighbouring navy headquarters.
Brigadier Sarath Munasinghe, a Sri Lankan military spokesman, said: "It had to be the Tamil Tigers. Who else would have done such a thing like this?"
The blast is thought to be in response to the army's claim on the main Tiger guerrilla base at Jaffna, on the north of the island, during a long and bloody campaign that ended last December.
Witnesses said a lorry stopped near the bank at about 1045 local time and the driver was confronted by security staff.
Three people jumped out of the vehicle with guns blazing and detonated two bombs.
Meanwhile, the lorry reversed into the central bank and blew up.
The police said the driver of the truck died in the blast.
Two youths wearing jackets filled with explosives were later arrested at the Fort railway station nearby.
The blast caused the first two floors of the 10-storey central bank to collapse and it shattered the windows of a 39-storey trade centre that was still under construction.
Office workers trapped on the upper floors of burning buildings nearby were lifted to safety by helicopters.
The Intercontinental Hotel, one of several luxury hotels in the area, was evacuated.
Most of the dead and wounded were in the Central Bank building, where Sri Lanka's gold reserves are held and the country's financial policy is made.
The director of the National Hospital's trauma unit, Hector Weerasinghe, said 53 people had died so far.
Around 1,060 people were admitted to two hospitals nearby while hundreds of others were released after treatment.
The blast comes as the government prepares an ambitious political offensive to end more than a decade of fighting.
It also follows a major government victory last month, when the Sri Lankan Army seized the city of Jaffna, a former stronghold of the Tamil Tiger rebels.
Anuruddha Ratwatte, the deputy defence minister, said on state television: "If Velupillai Prabhakaran [the Tamil Tiger chief] thinks that by these acts he can stop our military offensive, he is dreaming.
"We say quite clearly that these acts will make us even more determined to destroy terrorism.''
The economic consequences of the blast for Sri Lanka will be catastrophic, both through direct losses and because of lost tourism and foreign investment.
A total of 91 people died following the suicide bomb blast in Colombo's central bank.
The attacks by the Tamil Tigers continued with the deaths of a further 78 people in a bomb attack on a crowded train in the city during the summer.
By then the number of tourists visiting Sri Lanka had dropped by 40% while hotels laid off hundreds of workers and cut rates in a desperate effort to attract local holidaymakers.
The conflict between the ruling Sinhalese government and the minority Tamil rebels, who want a separate state, began in the 1970s and continued throughout the rest of the 1990s.
A ceasefire and a political agreement reached between the government and rebels in late 2002 raised hopes for a lasting settlement. But Norwegian-brokered peace talks have stalled and rising levels of violence have threatened the truce.
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