NEW YORK, June 16 (Reuters) - U.S. cotton futures settled near a three-week low Thursday on investment fund sales inspired by a sell-off triggered by fears of the Greek debt crisis, analysts said.

On a fundamental basis, cotton is still looking at one of the worst droughts in a century badly harming cotton crops in Texas, the leading cotton-growing state in the United States. The key December cotton contract on ICE Futures U.S. fell 5.62 cents to finish at $1.2018 per lb, ranging from $1.268 to down the 6-cent daily limit at $1.198.

The spot July contract dropped the 6-cent limit to conclude at $1.4596 per lb. Total volume traded Thursday reached nearly 22,500 lots at 3 p.m. EDT (1900 GMT), about a fifth above the 30-day norm, Thomson Reuters preliminary data showed.

"This thing with Greece has forced a lot of people to exit their positions," said Sharon Johnson, senior cotton analyst with commodities brokerage Penson Futures in Atlanta, Georgia. She said the question now is whether the daily limit down moves during Wednesday and Thursday's session has priced in investor uneasiness about economic growth.

"We're definitely not trading fundamentals (in cotton)," Johnson said, adding fiber contracts are heavily oversold at this time and a recovery on Friday is not out of the question. Longer term, the market will keep an eye on the drought in Texas, which tightened its grip on the southern U.S. Plains as it expanded and intensified in central Texas. The drought is one of the worst for the state in a century. The weather forecast for Texas calls for more dry and hot weather through the weekend and into Monday, a report by forecaster Telvent DTN said.