NEW YORK, Aug 5 (Reuters) - Cotton futures sharply lower Friday on investor sales sparked by the weak global macro economic environment, but the ability to hold technical support meant fiber contracts should grind higher into next week, analysts said.

The key December cotton futures on ICE Futures U.S. dropped 3.34 cents or by 3.2 percent to finish at $1.0158 per lb, dealing from $1.0112 to $1.0541. The market traded below the 20-day moving average set at $1.0248. On the week, the market was off a fractional 0.19 percent.

Total volume traded stood at 14,000 lots, around 2.6 percent below the 30-day norm, Thomson Reuters preliminary data showed. Despite the sell-off in other markets, analysts said cotton has seen limited losses because technical support levels have held near the psychologically important $1/lb level.

"There is meltdown in virtually every market," said independent analyst Mike Stevens of Louisiana. "Cotton has held remarkably well."

Fundamentally, the market has factored in a bad drought in Texas and other U.S. cotton growing regions. Despite the problems in Texas, supplies are otherwise plentiful in other countries in the global market.

The market is looking forward to next Thursday when the U.S. Agriculture Department hands out its first monthly supply report for the 2011/12 marketing year (August/July) following actual field surveys covering the period up to Aug. 1.

Technicians feel the market will return to a near-term target at $1.135, which represents the break below the neckline of a head and shoulders pattern that took several months months to form.

Total volume traded Thursday hit 12,273 lots, about a quarter below the 30-day average, ICE Futures U.S. and Thomson Reuters data showed. Open interest was at 144,204 lots on Thursday, exchange figures showed.