The most closely watched measure of the nation's money supply, M1-B, fell $1.1 billion to a seasonally adjusted $430.9 billion in the week ended Sept. 2, the Federal Reserve reported yesterday.

The level of M1-B, which includes currency and checking deposits at financial institutions, is now well below the lower edge of the Federal Reserve's target range even though the Fed has been supplying reserves to the banking system in an effort to boost its growth.

However, a broader measure, M-2, which also includes shares in money market mutual funds and some other items, rose to $1.779 trillion in August from $1.760 trillion in July. The increase lifted M-2 slightly above the upper limit of the Fed's intended range. Tables on D10

The Fed's report halted a rally in the nation's bond markets, where prices of long-term bonds earlier had soared by nearly 2 points, or by $20 for each $1,000 face value. The New York Stock Exchange had ended trading for the week when the money-supply figures were released.

Economist David Jones at the investment firm of Aubrey G. Lanston & Co. said the Fed apparently has eased its stance somewhat. He cited a marked decline in the federal funds rate -- the interest charged on overnight loans of uncommitted reserves among banks -- which as recently as mid-July was at nearly 20 percent. By yesterday it had slipped as low as 15 percent.

Nevertheless, the average rate being paid by major banks on large 90-day certificates of deposit rose slightly to 17.78 percent from 17.77 percent the previous week.

Even though the overall economy is not growing, many businesses, unwilling to borrow in the long-term bond market at record-high interest rates, continued to seek funds from banks on a short-term basis. In the week ended Sept. 2, commercial and industrial loans on the books of the nation's large banks rose $1.72 billion compared with a gain of $164 million the previous week.

Amidst these confusing crosscurrents, Marine Midland Banks Inc. reduced its prime lending rate to 20 percent from 20 1/2 percent, becoming the third major bank to do so.

Meanwhile, the interest rate ceiling for FHA and VA mortgages on single-family houses insured by the federal government was raised a full percentage point to a record 17 1/2 percent, effective Monday.

The Federal Housing Administration said it also was lifting the ceilings on graduated-payment mortgages to 18 percent and on mobile home loans to 19 1/2 percent, among other increases.

In Paris, Beryl W. Sprinkel, undersecretary of the Treasury for monetary affairs, said at a seminar that the United States will continue its current restrictive monetary policy.

Speaking at a seminar, Sprinkel said the administration is giving "top priority" to fighting inflation. "The centerpiece of this anti-inflation effort is a commitment to achieve a steady slowing of the growth rate of the money supply," he said, an effort that already is bearing fruit in terms of lower inflation.

"As the market sees more of these low-inflation numbers and learns that neither this administration nor the Federal Reserve is going to permit an excessive monetary expansion, the stage will be set for vigorous noninflationary growth," Sprinkel predicted.