Basic Money Supply Takes Surprise Leap : $2.6-Billion Gain in

NEW YORK —  The nation’s basic money supply, known as M1, surged $2.6 billion in late June, the Federal Reserve Board said Friday in a report that dampened investor hopes for an imminent cut in the discount rate.

The surge in M1 “makes it more difficult for the Fed to respond to the economy with reduced interest rates,” said Maury Harris, chief economist at the New York investment firm of Paine Webber Inc.

Analysts said the report of the unexpectedly sharp rise left M1 so far above the upper limits of the Fed’s anti-inflation growth targets that monetary policy-makers must await convincing evidence on whether the economy needs another shot in the arm before pushing interest rates lower.

Some Expected Rate Cut

Before the report, there had been hopes in financial circles that the Fed would attempt to stimulate economic growth further by reducing the discount rate, the interest on its loans to banking institutions. The discount rate is 7.5%, a level it has held since mid-May following the third in a series of reductions that began last November.

The Fed said M1 rose to a seasonally adjusted $591.9 billion in the week ended June 24 from $589.3 billion the previous week. M1 includes cash in circulation, deposits in checking accounts and non-bank travelers checks.

For the latest 13 weeks, M1 averaged $581.2 billion, a 9.9% seasonally adjusted annual rate of gain from the previous 13 weeks.

The Fed has said it would like to see M1 grow between 4% and 7% from the fourth quarter of 1984 through the fourth quarter of 1985 in its attempt to provide enough money to keep the economy growing without reviving higher levels of inflation.

M1 currently is $14.6 billion above the upper limit of the Fed’s target, Harris said.

David Jones, an economist at the New York government securities firm of Aubrey G. Lanston & Co., said the latest rise in M1 was “large enough to take away any immediate chance of a Fed easing move.”

Jones said that, when Fed policy-makers hold their midyear review next week in Washington, the rapid growth of the money supply will “argue for the Fed deciding to hold unchanged its monetary stance at least until it gets a better fix on how the economy is going.”

Before the release of the money supply report late Friday, interest rates had tumbled in response to figures released earlier by the Labor Department of another decline in business payrolls in June.

Prices of 30-year Treasury bonds, which move in the opposite direction of interest rates, had shot up more than $20 for each $1,000 in face value by the time the Fed released its figures at 4:30 p.m. EDT. But after the money supply report was released, bond prices gave back about $5 of that gain.

The weekly report is usually released on a Thursday but was delayed by one day because of the Independence Day holiday this week.

In other reports:

- The Federal Reserve Board said commercial and industrial loans on the books of the nation’s large banks fell $1.49 billion in the week ended June 26, compared to a gain of $788 million in the previous week.

- The Federal Reserve Bank of New York reported commercial and industrial loans at major New York City banks fell $761 million in the week ended June 26, compared to a gain of $71 million a week earlier. Commercial paper, or short-term corporate IOUs, outstanding nationwide rose $2.402 billion in the week ended June 26 after increasing $62 million in the previous week.

- The Federal Reserve said borrowings from the Federal Reserve System averaged $546 million in the two-week period ended Wednesday, up from $511 million in the previous two weeks. Borrowings from the Fed averaged $851 million in the week ended Wednesday, up from $242 million the previous week.