(Adds quotes, additional details from survey)

By Julie Haviv

NEW YORK, July 2 (Reuters) - U.S. mortgage rates dropped in the latest week, a move that bodes well for the hard-hit U.S. housing market, which has been showing signs of a recovery.

Interest rates on U.S. 30-year fixed-rate mortgages dropped to 5.32 percent for the week ending July 2, according to a survey released on Thursday by home funding company Freddie Mac.

That was down from the previous week's 5.42 percent, but significantly higher than the record low of 4.78 percent set the week ending April 2. Freddie Mac started the Primary Mortgage Market Survey in 1971.

Debt is driving interest rates, Cameron Findlay, chief economist at LendingTree.com in Charlotte, North Carolina, said.

"The true bellwether of rates is the supply of U.S. government debt, which continues to dominate headlines and mortgage rate direction," he said.

"The stronger-than-anticipated demand for the debt has helped maintain rates and even driven them slightly lower," he said.

The drop in mortgage rates bodes well for the U.S. housing market's stabilization, with sales rising and home price declines moderating in many regions of the country.