By Shihar Aneez

COLOMBO, Nov 6 (Reuters) - Sri Lanka delivered its formal response on Friday to a European Union probe that found it in breach of international human rights laws and said it was hopeful of retaining a lucrative trade concession with the bloc.

The EU had set Friday as a deadline for Sri Lanka to respond to its report, which European diplomats had said meant the Indian Ocean island was likely to lose concessions worth more than $100 million for its top export, garments.

The concession, the Generalised System of Preferences Plus (GSP+) is a special incentive scheme for sustainable development and good governance, offering tariff cuts to support vulnerable developing countries in ratification and implementation of international conventions in these areas.

"We will be setting out to clarify the points they have raised," said Human Rights Minister Mahinda Samarasinghe. "We are continuing the dialogue with the EU and we are hopeful that finally that GSP+ is granted."

Sri Lanka's Foreign Minister Rohitha Bogollagama later handed the response document to all EU member states represented in Colombo, the ministry said in a statement.

"Minister Bogollagama -- expressed confidence that the observations provided by Sri Lanka would be extensively examined by the European Commission and the findings reflected in its recommendation to the Council of the European Union," it said.

The EU's ambassador to Sri Lanka, Bernard Savage, told Reuters after receiving the report that he expected a decision from the European Commission later this month.

EU diplomats have said Sri Lanka could retain the concession, if it could address concerns raised, including rapid resettlement of more than 150,000 war displaced, release of an arrested journalist, ensuring media freedom and protecting human rights.

HUMAN RIGHTS VIOLATIONS

Sri Lanka, which had initially said it would not respond, appointed a four-member panel to analyse and reply to the EU report, which had alleged human rights violations and torture stemming from a 25-year war with Tamil Tiger rebels.

Human Rights Minister Samarasinghe, a member of the panel, said the country had taken steps to address the "problems and challenges" confronting it in the aftermath of the end of its 25-year civil war in May.

He said more than 40 percent of the 288,000 people displaced by the war, known as internally displaced persons or IDPs, had been resettled, while a national action plan to address issues such as torture and extra-judicial killings was being finalised. "Certainly on IDPs, that's something that they were interested in, now we have a successful position to communicate to them," he said.

Samarasinghe added that Sri Lanka's president had appointed a five-member committee of local legal and academic experts to probe a a U.S. State Department report of possible war crimes at the end of the conflict.

"We have already responded 99.9 percent of the allegations with clear answers. But, we are still ready to emphasise the Sri Lankan government stance, based on the recommendations through this independent committee report," he said.

In 2008, the European Union was Sri Lanka's largest export market, accounting for 36 percent of all exports, followed by the United States with 24 percent.

Suspending the preferential tariffs -- which can go as low as zero -- would hit Sri Lanka's textile industry hard.

Garments netted the country a record $3.47 billion from EU markets last year, and were its top source of foreign exchange, followed by remittances of $3 billion and tea exports of $1.2 billion. (Editing by Alex Richardson)