* Greece's ATG index down 2.5 pct on debt default worries
* Sentiment also worsens on hints of U.S. rate hike this year
* Italian, Spanish stocks fall sharply; Fiat shares slip
By Atul Prakash
LONDON, May 25 (Reuters) - European equities fell on Monday, tracking Friday's losses on Wall Street and as a Greek minister said Athens cannot make debt repayments next month unless Greece reaches a deal with its creditors.
Greece's ATG index fell 2.5 percent on the comments by Interior Minister Nikos Voutsis during a weekend TV show. After four months of talks with its euro zone partners and the IMF, the leftist-led government is still scrambling for a deal that could release up to 7.2 billion euros ($7.9 billion) in remaining aid to avert bankruptcy.
"Investors are very nervous because the chance of a default has clearly increased," said Koen De Leus, senior economist at KBC in Brussels. "But I believe that Greek politicians understand the seriousness of the issue and will ultimately arrive at a common ground to have an agreement with the creditors."
The benchmark French CAC 40 index was down 0.8 percent by 0823 GMT in cautious trading, mirroring losses in the United States on Friday after Federal Reserve Chair Janet Yellen hinted at a possible rate hike this year.
In comments made after European markets closed Yellen said that delaying a policy tightening until employment and inflation hit targets risked overheating the economy.
Trading volumes in Europe were expected to be thin as several markets in countries including the United Kingdom, Germany and the United States were shut for holidays.
Italy's FTSE MIB fell 2.1 percent, led lower by Fiat Chrysler Automobiles. It fell 3.2 percent after the New York Times reported on Saturday that the company's Chief Executive Sergio Marchionne sent an email to General Motors Co Chief Executive Officer Mary Barra in March suggesting combining the automakers, but was rebuffed.
Shares in UBI Banca also fell 3 percent after Director General Francesco Iorio departed the Italian lender to become the chief executive of smaller rival Popolare Vicenza.
Spain's IBEX fell 1.8 percent after the ruling People's Party took a battering in regional and local elections on Sunday. Voters punished Prime Minister Mariano Rajoy for four years of severe spending cuts and a string of corruption scandals.