Pasternak (right) has been Stewart's close friend for some 20 years

Mariana Pasternak's revelation is being seen as the most damaging testimony in the stock fraud trial of Ms Stewart.

Ms Stewart - who is accused of lying to investigators about illegal tip-offs - claims she sold the shares in 2001 for an entirely different reason.

She could face up to 30 years in jail and fines of $2m if found guilty.

Ink mystery

Testifying in a New York's courtroom, Ms Pasternak said Ms Stewart told her about the sale by ImClone's CEO Sam Waksal on 30 December 2001 - three days after Ms Stewart sold her 3,928 shares of the biotech company.

Stewart has denied lying

Ms Pasternak said she recalled Ms Stewart saying Mr Waksal "was selling or trying to sell his stock and his daughter was selling or trying to sell her stock".

She said Ms Stewart then continued: "His stock is going down, or went down, and I sold mine."

Ms Pasternak also quoted Ms Stewart as saying: "Isn't it nice to have brokers who tell you those things?"

Ms Pasternak said the conversation occurred when the two were on holiday in Mexico.

Ms Stewart and her stockbroker Peter Bacanovic, who is also on trial, are accused of lying to investigators about the ImClone trade, which prosecutors say was made due to an inside tip.

Ms Stewart denies being tipped about Mr Waksal's sale.

She insists she and Mr Bacanovic had a prior agreement to sell Ms Stewart's stock in ImClone if it fell below $60 a share.

The next day after Ms Stewart sold her stock, the US Government declined to review an ImClone cancer-fighting drug, sending the stock price to a sharp decline.

Also on Thursday, a forensics expert testified Mr Bacanovic used a different ink to make a notation next to an entry for ImClone stock on a worksheet of Ms Stewart's stock sales.

Prosecutors were expected to rest their case on Friday.

Martha Stewart, 62, is a household name in America, who offered homespun advice on lifestyle through her books, magazines and multimedia productions.