The nation's money supply fell by $600 million in the week ended Jan. 20, and the level for the week before has been revised downward by $200 million, the Federal Reserve reported yesterday.

Financial market analysts had been looking for a somewhat larger decline that would reverse more of the record $10.4 billion jump in M1--one measure of the money supply--in the first week of this month. M1--which includes currency in circulation and checking deposits at financial institutions--shot up from $440.2 billion in the week ended Dec. 30--to $450.6 billion the following week.

The unexpected increase, along with a more modest $500 million rise in the Jan. 13 week, pushed the level of M1 far above the Federal Reserve's target range. As a result, the central bank has been less willing to supply reserves to the banking system in the past two weeks, and short-term interest rates were rising until the middle of this week.

The central bank's monetary policy group, the Federal Open Market Committee, will meet Monday and Tuesday to determine the Fed's short-term monetary targets and to set them officially for the full year. Last July the FOMC agreed tentatively on a target range of 2 1/2 percent to 5 1/2 percent for M1 growth from the fourth quarter of 1981 to the fourth quarter of 1982. The committee also said the goal should be the midpoint of that range, or 4 percent.

That tightening by the Fed was reflected in a rise of the average federal funds rate in the week ended Jan. 27 to 13.98 percent from 12.96 percent the week before. The federal funds rate is the rate banks charge one another for loans of reserves.

Treasury Secretary Donald T. Regan sharply criticized the Federal Reserve this week for allowing the recent sharp increase in money growth. Fed Chairman Paul A. Volcker said the rise might well be temporary. A similar increase the same week a year ago was reversed partially in the following month.

Federal Reserve officials are determined to slow the growth of money to reduce the rate of inflation. Privately, a number of them said they do not expect the FOMC to try to take advantage of the opening Secretary Regan gave this week by asking that the Fed allow money growth in the upper third of its target range--or 4 1/2 percent to 5 1/2 percent--instead of the 4 percent midpoint.