Money market fund investors seeking stronger returns in competing short-and long-term investments caused the largest one-week drop in money- fund assets in two years, sources said.

Assets in money market mutual fund assets fell 0.18% to settle at $775.55 million for the week ended Jan. 31, according to the Investment Company Institute.

The $9.23 billion outflow in money-fund assets is the largest weekly drop since February 1994, when fund portfolios experienced a $9.3 billion loss.

Both retail and institutional funds lost assets in the week.

"The bulk of the losses were institutional investors seeking the better yields of negotiated certificates of deposit and commercial paper," an ICI spokeswoman said.

But Michael Harrington, a first vice president of money market funds at Zurich Kemper Investments Inc., said the drop in both retail and institutional classes suggests that investors are also opting for stock funds, which enjoyed dazzling returns last year.

"Investors looked at total returns for 1995 in year-end reports and may have reployed more money to stocks and stock funds," he said.

Taxable retail funds fell by $1.98 billion, while tax-free retail portfolios lost $898 million. And taxable institutional funds decreased by $5.17 billion while their tax-exempt counterparts lost $1.18 billion.

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