The stock market was buoyed by some unexpectedly favorable news on the inflation front yesterday and decisively hurdled 900 on the Dow Jones industrial average - a barrier that has been giving it trouble in the past few weeks.

The Dow was up 14.03 points for the day to finish at 907.74, its highest close since July 1977. The last time the market closed above 900 was on Aug. 17 when it hit 900.12.

The market came out of the gate strongly following release of wholesale price figures for July that showed a drop for the first time in two years. It was also encouraged by Thursday's report from the Federal Reserve Board that the basic money supply dropped $1.8 billion in the most recent statement week. Many analysts had been expecting an increase.

Despite the drop, however, the Fed appeared to tighten interest rates again yesterday, raising the rate on federal founds another 1/3 point to 8 3/8 percent.

Analysts said the Fed is probably expecting the money stock to keep expanding vigorously in the weeks ahead as the economy continues to show good strength and it is, therefore, taking some preemptive actions.

The tightening move damped the market's enthusiasm only temporarily. Ahead by 10 points early in the session, it whittled its gain to 6 1/2 points before surging in the final hour.

"The forces of supply won out over the forces of demand," commented Larry Wachtel, vice president with Bache Halsey Stuart Shields. He noted that the strong close reversed the patern in the final hours as institutions sold into the market.

"Given this kind of close, Monday should be an explosive day," Wachtel predicted, adding that volume could approach record levels.

Volume yesterday totaled 42.2 million shares on the New York Stock Exchange. This topped Thursday's total of 40.3 million shares.

Advancing stocks outnumbered those that declined by a ratio of about 3-to-1.

For the week, the Dow Jones industrials registered an advance of 28.41 points.

Significantly, the most active list was not totally dominated by gambling and airlines issues, as it has been in recent days, but also included some well known Blue Chips like General Electric, Texaco, Dow Chemical. Citicorp and Gulf Oil.

This was also greeted positively since a major market advance is usually led by these large capitalization companies, and not by highly speculative issues.

"What this market needs is some respectability," one broker commented.

There was, meanwhile, some talk that the management of General Motors, a bellwether stock for the market, was contemplating a possible stock split and a dividend increase. And GM stock closed the day up 1 1/3 at 66.

Such a move could provide another tonic for the market, but a GM spokesman, asked for comment, said "that's pure speculation," and pointed out that the giant automaker's board is not scheduled to meet again until next month.

Robert Stovall, analyst with Dean Writer Reynolds, said the market's strong volume boded well for a continued advance.

"The fundamental news is fairly good, the momentum is powerful, and all the participants are in there," he said, nothing that investiment interest is now spread between the public, the institutions and foreign purchasers.

Brokerage issues, which are benefitting from the market's surging volume, also showed good strength. Bache gained 3/4 to 10 1/2, following a strong earnings increase in its July quarter. Merrill Lynch was on the most active list and gained 1 1/4 to hit a new high for the year of 24 1/4.

The broader NYSE composite index was up 0.74 to 60.24 and the American Stock Exchange index gained 3.15 to 175.13 with about 475 issues gaining while 250 were lower.

Among the most active Amex issues was Dome Petroleum, which jumped 6 1/3 to 88 1/2. And NUMAC was up 6 1/2 to 47. NUMAC said its trading was halted pending an announcement Monday by Imperial Oil about a joint venture uranium exploration program in Saskatchewan. Numac has a 25 percent interest in the project.

In the over-the-counter market, the NASDAQ composite index climbed 1.27 points to close at 138.36.