* Greece's ATG index falls on renewed debt default worries
* Spanish stock market drops after local election results
* Volumes thin with London, Frankfurt and New York closed
By Atul Prakash
LONDON, May 25 (Reuters) - European equities fell on Monday, with the Spanish and Greek stock markets hit by investors' concerns over Greece's debt problems and a poor local election result for the Madrid government.
Athens' main index equity index fell 1.2 percent after Greece's interior minister said on Sunday the country would not be able to make debt repayments to the International Monetary Fund next month unless it makes a deal with creditors.
Spain's IBEX equity index also fell 2.1 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.
Even though most investors believe that Greece will remain in the euro zone, stock market dealers said the latest comments coming out of Athens were enough to make traders nervous.
"Investors are very nervous because the chance of a default has clearly increased," said KBC's senior economist Koen De Leus. "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 pullback in European stock markets also mirrored losses on Wall Street on Friday after U.S. Federal Reserve Chair Janet Yellen hinted at a possible rate hike this year.
Yellen said delaying a policy tightening until employment and inflation hit targets risked the economy overheating.
France's CAC-40 stock market weakened by 0.7 percent while Italy's FTSE MIB fell 1.9 percent, led lower by Fiat Chrysler Automobiles.
Fiat declined by 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.
Trading volumes in Europe were thin, with the London, New York and Frankfurt stock markets shut for holidays. (Additional reporting by Sudip Kar-Gupta; Editing by Catherine Evans)