UNITED NATIONS/COLOMBO – U.N. Security Council members see no point withholding an IMF loan or taking other steps to punish Sri Lanka, the council's president said, as Colombo again rejected foreign calls for a ceasefire with rebels.

I have not heard anyone suggesting that, Mexican Ambassador Claude Heller, president of the 15-nation council, said regarding withholding the loan after an informal session on Sri Lanka.

Colombo has been under fresh pressure this week, from the European Union among others, to allow a truce so civilians trapped in the tiny area the Tamil Tigers still hold can escape.

Asked if all council members agreed penalties such as withholding the $1.9 billion loan were unnecessary, Heller told reporters, Absolutely.

U.S. officials told Reuters this week that Washington was trying to delay the loan to pressure Sri Lanka to do more to help civilians caught in the fighting.

But Sri Lanka's central bank said there was no delay in its application for the loan and negotiations were in the final stages.

Sri Lanka needs the loan to help weather the global economic crisis and pay for postwar reconstruction. News of the U.S. officials' comments hurt Colombo's financial markets before the central bank's statements restored confidence.

Earlier in the week, British and French foreign ministers visited Sri Lanka and echoed a European Union call for a humanitarian ceasefire so civilians could escape the war zone.

But in a speech on Thursday in Sri Lanka before the Council session, President Mahinda Rajapaksa said: We have at no time gone for a ceasefire. We will not do so now.

Colombo fears a ceasefire could allow the Tigers to regroup and re-arm, but says it is taking care not to target civilians in the rebel-held area of coastline the military puts at around 5 square kilometers (2 square miles).

TRAPPED

The United Nations estimates up to 50,000 civilians are trapped there. The government puts the figure far lower, and said this week it would not use heavy weapons against the Tigers, while concentrating on trying to free civilians using small arms.

Rescue operations are going on. Troops are advancing into the 5 kilometer stretch, Sri Lanka military spokesman Brigadier Udaya Nanayakkara said on Friday.

The navy said separately it destroyed four Tiger vessels, two of them suicide boats, and killed 23 Tigers in waters near the rebel-held area on Friday.

The area is the last redoubt of the Liberation Tigers of Tamil Eelam, who have been fighting a 25-year war with the government for a separate ethnic Tamil homeland.

President Rajapaksa urged Tamil civilians in the area to leave it. I appeal to every one of you to come over to the cleared areas, he said in a statement the government reported was air dropped into the zone on Friday.

My government will continue to give utmost priority to ensure the safety and welfare of each and every one of you.

Thousands of civilians have already fled Tiger-held areas, despite reports the rebels try to forcibly keep them on hand as human shields. The Tigers deny that and say the civilians are afraid to go over to the government side.

Some 200,000 are now in government camps.

In remarks prepared for the press, Heller said the council repeated calls on the government not to shell the conflict zone and urged the Tigers to stop using civilians as human shields and lay down their weapons.

The Tigers say the shelling is continuing and taking a heavy toll of civilians. The government denies that, but U.S. Ambassador Susan Rice made clear Washington had doubts.

Despite the government of Sri Lanka's promise to suspend combat operations, most accounts indicate that shelling into the conflict zone continues, she said in remarks prepared for delivery at the closed-door meeting.

Very credible reports also indicate that the Tamil Tigers are using civilians as human shields, and have, in some cases, shot at civilians trying to leave the conflict area.

Sri Lanka's military describes the latest fighting as involving small arms. It has still said it is inflicting heavy casualties, reporting scores of Tigers killed this week.

Claims from the battle zone are difficult to confirm given lack of media access and of independent observers on the ground.

Both sides in the Sri Lanka conflict make extensive use of the internet and web pages to spread their messages.

The military's Nanayakkara said on Friday that LTTE (Liberation Tigers of Tamil Eelam) hackers had hacked the Army official website and work was under way to restore it.

For a time, the hacked site carried a Tiger claim that thousands of government shells had been fired into the LTTE-held area, and pictures of purported civilian victims. The site was restored to normal later on Friday.

Mexico