Flowing ad dollars helped stem the red ink and boost shares of Martha Stewart Living Omnimedia as investors applauded the ex-con domestic diva.

The mini-conglom’s losses shrank to $6.9 million in the first quarter from $19.2 million a year ago, when Stewart was winding up a prison term for lying to investigators in a stock trading probe.

Revenue surged 60% to $62 million. Publishing sales were up 43% to $36 million as ad pages jumped 70% at flagship book Martha Stewart Living and circa 40% at Everyday Food.

The stock gained 6.8% Tuesday to close at $21.09.

MSO is about to launch a women’s magazine called Blueprint for ages 25-45 — a demo that CEO Susan Lyne said will be a focus of MSO as it seeks to expand. During a conference call, she also cited the company’s Internet biz and merchandising deals as growth drivers.

But heavy investments in print and online will mean continued losses — divisional and at the parent company — in the second quarter and full year. Merchandising was the only unit that ended last quarter profitable.

TV and radio revenue soared to $11 million from $800,000 in the year-ago period. But the latest quarter included revenue from syndicated daily show “Martha” and the new Martha Stewart Living Radio channel on Sirius Satellite Radio.

The TV show continues to post disappointing ratings, but Lyne called it “a significant driver for the rest of the businesses.”

Merchandising revenue rose to $11.3 million from $9.4 million — in large part on MSO’s deal with the nation’s largest homebuilder, KB Home, which is creating Martha Steward-branded “communities.” The first was unveiled in North Carolina last month. Others are planned for Atlanta; Houston; Charlotte, N.C.; Las Vegas; Southern California; and Daytona Beach, Fla.

MSO also has pacted with retail giant Federated Department Stores to produce an exclusive collection of Martha Stewart home merchandise for Macy’s. The company said it expects to capture about 10% of Macy’s $4 billion in home sales.

Internet revenue dipped to $2.9 million from $3.1 million. Company said Martha Stewart Living is working on a “how-to” site for launch in ’07.