The money supply measure the Federal Reserve has been watching most closely for setting monetary policy rose at a 29 1/2 percent annual rate in January, apparently largely because of a huge flow of funds into the new money market deposits accounts.

The Fed's policymaking group, the Federal Open Market Committee, decided on Jan. 28 not to respond by tightening conditions in financial markets because a staff analysis said the enormous popularity of the money market deposit accounts was to blame.

Deposits in the new accounts, which were first available Dec. 14, reached $232.2 billion in the week ended Feb. 2 as the closely watched money measure, M-2, rose $48.1 billion in January. Most of the funds in the new accounts came from other accounts and certificates of deposit already part of M-2.

The FOMC also met this week for two days to decide upon money growth targets for 1983, which Fed Chairman Paul A. Volcker will disclose next Wednesday in testimony to the Senate Banking Committee.

Separately, the Fed announced that it has changed the definition of M-2 slightly and that it has revised figures for 1982 both for that reason and because of a recalculation of seasonal adjustment factors.

A narrower money measure, M-1, includes currency in circulation and checking deposits at financial institutions, and travelers checks. M-2 also includes savings and small time deposits, money market mutual fund balances except for institutional funds, and overnight borrowings of Eurodollars and repurchase agreements.

The definitional changes involve adding to M-2 the previously excluded tax-exempt money market mutual fund balances, again except for institutional fund shares. A second change was to remove from M-2 all balances held in individual retirement accounts and so-called Keogh plans. The former raised the level of M-2 growth last year by about one-half a percentage point, while the latter lowered it by twice as much.

The funds excluded from M-2 will remain part of M-3, which also includes large time deposits, term repurchase agreements and institutional money market mutual fund balances.

Taken together, the changes lowered growth of M-2 between the fourth quarter of 1981 and the fourth quarter of 1982 from the 9.8 percent reported earlier to 9.2 percent. The Fed's had set a range for M-2 expansion over that period of 6 percent to 9 percent.

At a meeting in late December, the FOMC decided to seek an expansion of bank reserves consistent with growth of M-2 at an annual rate of around 9 1/2 percent from December to March, and growth of M-3 at an 8 percent rate.

The committee also decided, with two dissents, to continue to pay little attention to M-1, which up until last October was the key monetary aggregate in terms of Fed policy.

M-1, which grew at a 12.2 percent annual rate from July to January, has been heavily influenced by other aspects of the deregulation of financial institutions, and a majority of the FOMC has chosen to turn to M-2 and M-3 instead. However, Robert P. Black, president of the Richmond Federal Reserve District Bank, and William F. Ford, his Atlanta counterpart, disagree.

The minutes of the December meeting, released yesterday, indicate that Black wanted policy directed to ensure that "the growth of M-1, abstracting from temporary effects of the introduction of new money market deposit accounts, would moderate from the extremely rapid rate of recent months. Black was concerned that "excessive underlying growth in that aggregate might reverse the progress achieved in reducing inflation and inflationary expectations and lead to substantially weaker markets for long-term securities."

The latest 13-week average for M-1 shows a 12.7 percent annual rate of increase compared to the previous 13 weeks. In the week ended Feb. 2, M-1 jumped $5.9 billion to a level of $487.8 billion. M-2, with its $48.1 billion rise, reached $2,005.7 billion. tables on Page G12

The target for M-1 growth last year was a range of 2 1/2 percent to 5 1/2 percent. The target for M-3 was 6 1/2 percent to 9 1/2 percent. The revisions just announced did not change the previously reported 8 1/2 percent growth of M-1 over the four-quarter period. M-3 growth, previously reported as 10.4 percent, was lowered to 10.1 percent.