The Investment Company Institute, the trade organization for mutual funds, said late yesterday it still was weighing its announced decision to sue the Federal Reserve in an effort to force the Fed to lift its reserve requirements on money market funds.

Earlier in the day, the Fed had informed the ICI that it wasn't prepared "at this time" to lift the 15 percent reserve requirement it had imposed on March 14. Institute President David Silver issued a statement saying the industry would have to "pursue its judicial remedies.'

The mutual fund industry contends the Fed exceeded its authority to putting credit restraints on money funds and lending institutions.

Late yesterday the Fed announced it was reducing a number of the restrictions, including those on money market funds. The reserve requirement on covered assets was cut in half to 7.5 percent.

The controls originally were imposed, at the urging of the thrift industry, to curb the growth of money market funds which were draining deposits from them. The move appeared to work at first, but more recently money market funds have had record increases while savings and loans are still feeling the effects of record outflows.

Before the Fed's March action, 79 money market funds had $60.8 billion in assets. Today there are 111 funds with $67.6 billion in assets, according to the ICI. Last week's $2.4 billion growth was the largest ever.

Investors have favored money market funds because their yields have remained high while interest rates on Treasury securities and money market certificates have plunged. On March 12 the average yield on money market funds was 13.08 percent, compared with 15.75 percent on money market certificates.

Today six-month certificates yield 9 percent and 30-month certificates pay 10.75 percent, whereas money market funds that existed before March 14 pay 14.73 percent, according to Donoghue's Money Fund Report. The newly created "clone" funds yield 11.60 percent.

The Federal Home Loan Bank Board also moved yesterday to help savings and loans find sources of funds other than customer deposits and borrowings from the board. Until then thrifts could borrow from outside sources sums equal to 15 percent of their deposits.

Yesterday's final regulation will allow them to borrow up to 50 percent of their total assets by using instruments such as debentures and mortgage-back bonds. The move could infuse as much as $290 billion into S&LS.

A separate ruling is aimed at facilitating the sale of mortgage-backed securities. At present only a handful of very large S&LS in the country issue them. Changes in the rules allowing S&LS to avoid the cost of private mortgage insurance on the underlying mortgages would reduce the cost of issuing these securities. As a result, medium-size S&LS with assets as low as $100 million would be able to sell them.