He said there were no records of how that money was spent.
"I only know that he loved expensive cigars. I know he loved pens, watches. I found it strange," Talansky told the court.
Talansky said he passed on about $150,000 to Olmert in donations and loans - some of which were not repaid.
His testimony also showed he had picked up a bill for $4,700 from a three-day stay by Olmert at a New York hotel and loaned the Israeli leader as much as $30,000 for a holiday in Italy.
It was unclear whether Olmert had returned that money.
Prosecutors are trying to establish whether Olmert gave favours in return for the donations.
Both Olmert and Talansky have denied any wrongdoing.
Olmert said earlier this month that he did accept cash from Talansky for his two successful campaigns for mayor of Jerusalem in 1993 and 1998, a failed bid to lead the Likud party in 1999 and a further internal Likud election in 2002.
"I never expected anything [from Olmert] personally. I never had any personal benefits from this relationship whatsoever," Talansky was quoted by Israeli reporters as telling the court, which limited the number of journalists allowed to attend the session.
Moshe Lador, a state prosecution lawyer, said the premier at this stage of the inquiry is suspected of "fraud" and "abuse of confidence".
| Many say Olmert's credibility has been|
tarnished by the allegations [GALLO/GETTY]
Prosecutors believe Talansky's testimony could provide key evidence for Olmert to eventually be charged.
"At this stage it is a preliminary inquiry. The case could develop or it could be closed. There could be other choices," Lador said earlier.
"I hope that after this [Talansky's] testimony, we can make a good decision," he added.
Last week the Supreme Court rejected Olmert's appeal to prevent Talansky from giving preliminary testimony.
Israeli election law prohibits political donations of more than a few hundred dollars.
A judicial source said the sums involved in the Olmert case totalled hundreds of thousands of dollars.
Olmert has been questioned twice by investigators about the allegations which have led the opposition to call for his resignation.
"Olmert is a great a political survivor," Al Jazeera's Jacky Rowland, reporting from outside the court house in Jerusalem, said.
"This is not the first time he's found himself facing allegations of financial wrongdoing - in fact, this is the fifth time in the two years that he's been prime minister - but time and again the allegations haven't stuck."
A police source, who declined to be named, said last week that Israeli investigators would travel to the US in the coming weeks to continue the investigation.
Olmert is also the subject of three more police inquiries into suspected corruption involving potential conflicts of interest, alleged fraudulent property transactions and alleged abuse of power in connection with political appointments.