Chase Manhattan Bank, the nation's third largest, raised its prime lending rate to 12 percent today, matching the record level that key interest rate reached in September 1974.

Chase's prime rate -- the interest it charges its best corporate customers for short-term loans -- had been 11.75 percent.

Continental Illinois, the seventh largest, later did the same, and other banks are expected to follow their lead soon.

The increases came amid signs that the Federal Reserve Board is taking further steps to tighten its monetary policy to fight inflation and shore up the value of the dollar, which had been sagging last week.

Analysts said that the central bank appears to have raised the target level for the so-called federal funds rate to between 10 7/8 percent and 11 percent from 10 5/8 percent.

But analysts also said that this probably the last round of credit tightening the Federal Reserve will undertake because the government soon will have to shift its emphasis from fighting inflation to fighting recession and rising unemployment.

The federal funds rate is the interest banks charge one another for overnight loans of excess reserves and is considered the key short-term interest rate both because it influnces the availability of credit and the interest banks charge for loans and also because it is an indication of the Federal Reserve's credit posture.

The central bank influences the federal funds rate by purchasing or selling government securities in the open market. When it wants to lower the rate or keep it from rising, the Fed buys government securities, thereby injecting funds into the system. When it wants to raise the rates, it sells government securities, absorbing funds that banks otherwise might lend.

Even though short-term interest rates might be nearing, or at, their peak for this business cycle, the quarter-point increase posted by Chase in its prime rate can be expected to spread to most other major banks.

In announcing the increase, a Chase spokesman cited both strong loan demand on the part of businesses and increases in rates on money market securities such as certificates of deposit.

Although banks -- Chase included -- have sizable deposits from consumers and businesses that they in turn lend to customers, most major banks lend much more money than they get in checking and savings balances.

To get the additional funds they need to satisfy their customers' loan demands, banks go into the money market to borrow themselves.

Rates on the large certificates of deposit that banks sell are now about 10.75 percent. The Chase spokesman said that today's prime rate increases reflect the generally higher costs to the bank of obtaining funds.

Leon Gould, an economist with Commercial Credit Corp., said a federal funds rate at or near 11 percent won't trigger any further increases in the prime lending rate.

He said the Fed "will be reluctant to push the federal funds rate above 11 percent because of signs that the economy is beginning to accumulate a large number of unsold goods. At some point, companies will decide that their inventories are too large and will begin to slow production.

Those decisions translate directly into fewer working hours for employes and reduced orders to suppliers. Already, for example, steel producers are feeling a reduction in orders for sheet and strip steel from automobile manufacturers.

Furthermore, rising oil prices already are cutting into customers' spending and, when higher heating oil prices hit homeowners this winter, consumer spending will be hit again.

As a result, the Federal Reserve will be reluctant to take further steps to make credit more expensive for fear of turning what many anticipate will be a mild recession into a severe one, analysts said.

The Fed's credit tightening steps today came after Tuesday's policymaking Open Market Committee meeting in Washington.

Although the increase in Chase's prime rate will force corporate treasurers to pay more money for loans, and should discourage some company borrowers, it is unlikely to have much impact on consumer loan rates even if all major banks follow Chase's lead as expected.

Consumer loan rates -- such as those charged on car loans -- tend to be much less flexible both up and down than do interest charges on corporate loans.

Consumer loan rates often are below the prime rate during periods of high interest such as now and are often above the prime rate when interest rates fall.