Money Supply Falls by $3.1 Billion

NEW YORK —  The nation’s basic money supply fell $3.1 billion in late December, the Federal Reserve Board reported Thursday.

The decline was bigger than market watchers expected, but the report had little effect in the credit markets.

The Fed said M1 fell to a seasonally adjusted $624.7 billion in the week ended Dec. 30 from $627.8 billion in the previous week. M1 includes cash in circulation, deposits in checking accounts and non-bank travelers checks.

For the latest 13 weeks, M1 averaged $617.8 billion, an 8.8% seasonally adjusted annual rate of gain from the previous 13 weeks.

Better Than Expected

The Fed has said it would like to see M1 grow between 3% and 8% from the second quarter of this year through the fourth quarter.

“The figure is better than expected, probably two times the decline that was anticipated,” said William Sullivan, a money-market researcher at the Dean Witter Reynolds securities firm.

But bond prices, which were down more than $10 for every $1,000 in face value before the report, showed little reaction. Short-term interest rates were also unaffected by the report.

The main reason, Sullivan said, was that the market “continues to be concerned with recent economic data--the improved unemployment rate--which was much better than expected. As a result, it is tending to ignore the monetary data at this time.”

In other reports:

- The Federal Reserve Bank of New York reported that commercial and industrial loans at major New York City banks rose $889 million, compared to a decline of $417 million a week earlier.

- The Federal Reserve said bank borrowings from the Federal Reserve System averaged $866 million, up from $317 million.

- The Federal Reserve said total adjusted reserves of member banks averaged $45.749 billion, up from $44.715 billion a week earlier.

- The Federal Reserve said net borrowed reserves totaled $156 million in the week ended Wednesday, down from $1.282 billion a week earlier.

- The Federal Reserve Bank of St. Louis reported that the monetary base--the seasonally adjusted total of member bank reserves held at Federal Reserve banks and cash in bank vaults and in circulation--was $236.8 billion in the week ended Wednesday, up from $234.9 billion a week earlier.