* Athens' ATG index slides, Greek bank stocks slump
* Greek worries impact Italian bonds, Milan FTSE MIB falls
* Germany's Metro falls after Galeria Kaufhof sale deal
* Europe bourses in 2015: link.reuters.com/pap87v
* Asset performance in 2015: link.reuters.com/gap87v (Adds detail, updates prices)
By Alistair Smout and Sudip Kar-Gupta
LONDON, June 15 (Reuters) - European shares fell and volatility rose on Monday, led lower by a slide in Greek shares after the latest talks between Greece and its creditors to resolve its debt crisis collapsed.
The pan-European FTSEurofirst 300 dropped 1.4 percent to 1,522.66 points, sinking towards a 3-1/2 month low hit last Tuesday.
Volatility on the EuroSTOXX 50, or VSTOXX, rose by 2.4 points, having been as high as 28 points, its highest level since Greece's election back in January.
The crude measure of investor fear has risen to 5-month highs even as the U.S. equivalent, VIX, has almost halved in that time.
Germany's EU commissioner said on Monday it was time to prepare for a "state of emergency" after talks collapsed at the weekend to rescue Greece from default and ejection from the euro.
European Central Bank President Mario Draghi said a strong, comprehensive agreement was needed soon, but that funding would be kept open for Greece so long as the banks remained solvent.
Athens' benchmark ATG equity index fell 5.4 percent, with the Athens Stock Exchange FTSE Banks Index down 9.8 percent. National Bank of Greece fell 8.8 percent and Bank of Piraeus dropped 15.1 percent.
"There's been no progress on Greece, so I expect European stock markets will undergo further selling pressure in the near term," said Berkeley Futures' associate director Richard Griffiths.
The Euro Stoxx euro zone banks index was down 2.5 percent, set for its biggest fall in six weeks, pushed down by Greek banks but also banks in other peripheral euro zone markets.
Italy's FTSE MIB equity index fell 1.9 percent, with banks Monte Paschi, Intesa Sanpaolo and Banco Popolare down 2.9-4.7 percent as worries over Greece's debt situation hit the Italian bond market.
While the ATG is down by around 11.5 percent since early January, the FTSEurofirst 300 has managed to rise around 12 percent, supported by asset purchases from the European Central Bank.
Despite the resilience of European shares to the Greek turmoil this year, Monday's drops left investors fearing the ramifications of a default.
"The troublesome negotiations raise the question as to whether the parties are still committed to reaching agreement. We continue to have faith, as a Grexit would benefit nobody," Ruth van de Belt, Investment Strategist at Kempen Capital Management, said in a note.
Germany's DAX retreated 1.7 percent, leaving the index some 11 percent below a record high set in April, while France's CAC declined by 1.5 percent.
German retailer Metro was among the worst-performing stocks, retreating 5.3 percent after agreeing to sell its Galeria Kaufhof chain to Canadian department store operator Hudson's Bay for 2.8 billion euros - less than some estimates of a 2.9 billion euro price tag.
Today's European research round-up (Editing by Kevin Liffey)