Martha Stewart still faces four charges

Had she been found guilty of deceiving investors in her company, Ms Stewart could have faced a 10-year jail term.

The other four charges, arising from alleged insider dealing in shares in a friend's firm, each carry a five-year maximum sentence.

The defence rested on Wednesday without testimony from Ms Stewart.

Closing arguments will take place on Monday and Tuesday, and then the jury will start considering a verdict.

Bad news

The decision of Judge Miriam Goldman Cedarbaum to drop the worst charge stemmed from discussions with lawyers from both sides about what instructions she would give the jury.

In a 23-page ruling, she said the government had fallen far short in trying to press the charge.

"The evidence and inferences the government presents are simply too weak to support a finding beyond a reasonable doubt of criminal intent," she wrote.

Ms Stewart - and her former broker, who faces five charges of his own - are alleged to have lied to investigators when asked about the sale of almost 4,000 shares in drug firm ImClone in December 2001.

A day later, a negative government report on the firm's key cancer drug saw its shares plummet.

The firm's founder, Sam Waksal, has admitted to insider trading and is in jail.