A bond market rally was aborted late today after the Federal Reserve Board reported a disappointingly small decline in the money supply. Bond prices plummeted and interest rates rose in late trading.

But the stock market, which turned in its best performance in 10 months Thursday, registered its second consecutive increase today. The Dow Jones Industrial Average closed up 6.85 points at 871.10. On Thursday the Dow average jumped 21.59 points.

Stock trading was exceptionally heavy. About 73.6 million shares of stock changed hands between 10 a.m. and 4 p.m. on the New York Stock Exchange, up from about 66.7 million shares Thursday. It was the busiest day on the nation's biggest stock exchange since Oct. 10, 1979, when 81.6 million shares of stock were bought and sold.

The money supply figures were announced at 4:10 p.m., too late to have any impact on the major stock markets. But analysts who had expected a decline of at least $2 billion or even more in the amount of cash and checking accounts in the hands of businesses and individuals were stunned by the Fed's report of a $600 million decline.

Bond prices immediately fell about $15 for each $1,000 of face value, while short-term rates shot up about 50 basis points (a basis point is 1/100th of a percentage point).

Before the Fed's announcement, bond prices had been about $5 higher and short-term rates had fallen about 30 basis points on the day, said Nicholas Marrone of the Bank of New York.

The Federal Reserve, the nation's central bank, and most economists caution that the weekly money supply figures have little meaning. But traders and investors nonetheless hang on the weekly announcements and often, like today, react violently to the news.

Investors are scared that this week's slim decline--which follows a $10 billion surge two weeks ago and a smaller increase last week--will force the central bank into tightening its monetary policy, thereby boosting interest rates, to keep the money supply under control.

Many economists, including a majority of the policy makers at the Federal Reserve, believe that a money supply that grows too fast is a major contributor to inflation.

But Federal Reserve Chairman Paul A. Volcker continues to caution investors about getting too excited about the notoriously erratic weekly reports and the impact those reports have on Federal Reserve policy.

The Fed, for its part today, supplied reserves to the banking community, a move that the market interpreted as a slight loosening in policy. Interest rates fell after the Federal Reserve action, although they climbed again in the midafternoon only to fall in the hour before the Fed's announcement.

The second consecutive gain in the stock market, analysts said, is mainly a reaction to nearly eight weeks of continuous decline that began in early December. "We're seeing a countertrend now," said Newton Zinder of the brokerage firm E.F. Hutton. This week's trading volume was the fourth-highest on record at the New York Stock Exchange.

On the NYSE today, 1,133 issues closed higher in price, while 420 declined. The New York exchange's own index closed at 69.39 points, up 0.81. On the American Exchange, the index was up 3.07 points to 295.66. Volume on the Amex was 6.3 million shares compared with 6.15 million shares on Thursday.