* U.S. rig count rises for first time in 30 weeks
* Financial markets await Greek bailout referendum
* China watchdog investigates slump in stock market (Updates prices)
By Nia Williams
July 3 (Reuters) - Oil prices dropped on Friday as a rising U.S. rig count stoked more concerns about global oversupply while an investigation by Chinese regulators into suspected stock market manipulation further unsettled the market.
A sharp move lower in late-morning U.S. trade was exacerbated by thin liquidity, with many U.S. market participants off for the U.S. July Fourth holiday.
U.S. oil drilling increased this week after 29 consecutive weeks of declines, the strongest sign yet that higher prices are coaxing producers back after an extended period of low prices. ID:nL1N0ZI1LF
Oil rigs increased by 12 to 640 following a slump that cut the number of active U.S. rigs from a peak of 1,609 in October to a nearly five-year low last week, energy services firm Baker Hughes Inc BHI.N said.
"This is the first weekly increase in 30 weeks and is an indication that the slump in drilling activity has ended," said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt.
"Oil prices have retreated on that news," Fritsch told Reuters Global Oil Forum.
Brent crude for August LCOc1 settled down $1.75 at $60.32 a barrel, extending a downward trend since early May during which prices have fallen around 13 percent.
Front-month U.S. crude CLc1 was at $55.52, down $1.41, dropping below a trading range of $57 to $62 seen since early May.
"We have broken out of a two-month trading range and there are a lot of bearish factors that have come out, plus there are very, very thin volumes today," said Tariq Zahir, an analyst at Tyche Capital Advisers in New York.
The rising U.S. rig count adds to near-record production by Russia and the Organization of the Petroleum Exporting Countries, which is feeding a huge oversupply. ID:nL3N0ZI1QL
OPEC oil supply hit a three-year high in June due to record or near-record output from Iraq and Saudi Arabia, a Reuters survey showed this week. The cartel's production is close to 2.5 million barrels per day above demand, filling stocks worldwide. OPEC/O
The Greek debt crisis ahead of a referendum on Sunday and concerns over China's commodities markets weighed on investor sentiment.
Traders said commodity markets were also worried by reports that China's regulators had opened an investigation into suspected market manipulation after a slump of more than 20 percent in Chinese stocks since mid-June. ID:nL3N0ZI5UL
On Thursday, Shanghai's benchmark composite index .SSEC fell below 4,000 points for the first time since April.