Money Supply Up $6.1 Billion

The nation’s basic money supply rose $6.1 billion in early May, the Federal Reserve Board reported Thursday, a larger-than-expected increase that sparked a brief selloff in the bond markets.

However, two broader measures of money--M2 and M3--remained well within the growth targets set by the Fed.

The Fed said M1, which represents funds readily available for spending, grew to a seasonally adjusted $654.7 billion in the week ended May 5 from $648.6 billion in the previous week.

The increase in M1 was double the increase during the previous week and was twice as large as many analysts had expected. The surge kept M1 far above the targets set by the Fed in its attempt to provide enough money to stimulate non-inflationary growth.

William Sullivan, director of money-market research for Dean Witter Reynolds, attributed the unusually large surge in M1 to the government making about $7 billion in direct-deposit Social Security payments on a Friday during the latest reporting period. As a result, the money supply swelled as the funds remained in M1 bank accounts over the weekend.

M1 includes cash in circulation, deposits in checking accounts and non-bank travelers checks.

For the latest 13 weeks, M1 averaged $640.1 billion, a 9.7% seasonally adjusted annual rate of gain from the previous 13 weeks.

Among the broader measures, M2 averaged $2.621 trillion in April, up from $2.5914 trillion in March. M3 rose to $3.2878 trillion in April from $3.259 trillion in the previous month.

M2 is made up of M1 and such accounts as savings deposits and money-market mutual funds. M3 is the sum of M2 plus less-liquid accounts such as certificates of deposit in minimum denominations of $100,000.

In other reports:

- The Federal Reserve Bank of New York reported that commercial and industrial loans at major New York City banks fell $35 million in the week ended May 7, compared to a gain of $478 million a week earlier.

- Member bank borrowings from the Federal Reserve System averaged $235 million in the week ended Wednesday, down from $321 million in the previous week, the Fed reported. Borrowings from the Fed averaged $344 million in the two weeks ended Wednesday, up from $190 million in the previous two weeks.

- Total adjusted reserves of member banks averaged a seasonally adjusted $48.083 billion in the two weeks ended Wednesday, up from $46.985 billion in the prior two-week period, the Fed said.

- Free reserves in the nation’s banking system averaged $537 million in the two weeks ended Wednesday, up from $686 million during the previous two weeks, according to the Fed.