Stewart is accused of lying to federal investigators

Douglas Faneuil said he was told by his boss and her broker Peter Bacanovic to alert the TV celebrity that a firm's owners were ditching their shares.

Mr Bacanovic is also charged in connection with the case.

It centres on the allegation that Ms Stewart sold almost 4,000 shares in December 2001 after an insider tip.

Mr Faneuil told the court that Mr Bacanovic ordered him to tell Ms Stewart that the family of ImClone Systems' founder Sam Waksal was selling its shares.

Under US law, Ms Stewart is not guilty of insider trading herself, because she did not work for any of the firms involved with the share dealing.

Instead, federal prosecutors have charged her with obstruction of justice and making false statements over her sale.

The 28-year-old former assistant at Merrill Lynch & Co said he was concerned about passing on the tip, and asked Mr Bacanovic if it would be appropriate to do so.

"Of course. You must. That's the whole point," Mr Bacanovic allegedly replied.

'Cover up'

Mr Faneuil said he initially lied to investigators about informing Ms Stewart of the shares dump "to cover up".

He has pleaded guilty to a misdemeanour and is awaiting sentence.

BBC reporter Janet Ball said lawyers for Ms Stewart are expected to try to discredit his testimony when they cross-examine him on Wednesday.

"What the defence will say is that he's a liar - he wasn't given this order at all," she told the BBC's World Business Report.

Ms Stewart and Mr Bacanovic are charged with obstructing justice by lying to investigators about her trade of shares.

They deny the charges and maintain they had a pre-existing order to sell ImClone stock if it dropped below $60 a share.

Martha Stewart, 62, is a household name in the United States thanks to a stable of books, magazines and multimedia offerings of lifestyle advice.