Labuschagne, Smith guide Australia to 298-5 in second Test
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The tourists reached 298 for five at stumps after electing to bat first in their bid to clinch the two-match series in Galle.
Smith, on 109, and wicketkeeper-batsman Alex Carey, on 16, were batting at close of play after debutant left-arm spinner Prabath Jayasuriya took three wickets.
Smith smashed fast bowler Kasun Rajitha for a cracking cover drive to bring up his 28th Test hundred as he raised his bat to an applauding dressing room.
It was the former captain's first hundred since January last year during the third Test against India in Sydney.
Labuschagne, who made 104, and Smith put on 134 runs for the third wicket to take the attack to the opposition bowlers after Australia lost their openers in the first session.
Labuschagne recorded his seventh Test century and his first away from home in an attacking knock before Jayasuriya got him stumped at the stroke of tea.
Jayasuriya took his spin charge into the final session to get Travis Head bowled for 12, and Cameron Green trapped lbw for four.
But Smith and the left-handed Carey anchored the innings from there to deny any more wickets to the hosts.
Carey, who made 45 in Australia's crushing opening win last week, once again made his intent clear early in his knock with a reverse sweep for four off Jayasuriya.
Earlier, Sri Lanka struck with their lone pace bowler Kasun Rajitha, sending back David Warner for five in the fifth over of the day.
Off-spinner Ramesh Mendis cleaned up Usman Khawaja for 37 before lunch but Labuschagne stood firm and hit back with boundaries.
Labuschagne, who survived a missed morning stumping on 28 by Niroshan Dickwella, and Smith both handled the spinners with ease until their stand ended.
The hosts handed Test caps to spinners Maheesh Theekshana and Jayasuriya along with all-rounder Kamindu Mendis after a coronavirus outbreak in their team.
Ramesh, who took four wickets in the previous match, and Jayasuriya bowled a majority of the 90 overs while Theekshana, a mystery spinner, and Rajitha got the rest.
Sri Lanka's Covid-19 count went up to five on the eve of the final Test but Angelo Mathews returned to the team after he was forced out by an infection midway through the first match.
Sri Lanka v Australia second Test scoreboard
U. Khawaja b R. Mendis 37
D. Warner b Rajitha 5
M. Labuschagne st Dickwella b Jayasuriya 104
S. Smith not out 109
T. Head b Jayasuriya 12
C. Green lbw b Jayasuriya 4
A. Carey not out 16
Extras (b1, lb6, nb3, w1) 11
Total (5 wickets, 90 overs) 298
Yet to bat: M. Starc, P. Cummins, N. Lyon, M. Swepson
Fall of wickets: 1-15 (Warner), 2-70 (Khawaja), 3-204 (Marnus Labuschagne), 4-238 (Head), 5-252 (Green)
Bowling: Rajitha 19-4-56-1 (w1, nb3), R. Mendis 28-1-100-1, Theekshana 15-2-45-0, Jayasuriya 28-2-90-3
Sri Lanka: P. Nissanka, D. Karunaratne, K. Mendis, A. Mathews, D. Chandimal, K. Mendis, N. Dickwella, R. Mendis, M. Theekshana, P. Jayasuriya, K. Rajitha