European shares drop lower, set for weakest month since August 2011

* Euro STOXX 50, DAX, CAC all down about 1 pct

* UK stock market closed for holiday

* FTSEurofirst set for weakest month since 2011

* ENI (NYSE: E - news) rises after gas field discovery off Egypt

By Atul Prakash

LONDON, Aug 31 (Reuters) - European shares fell on Monday, with Germany's DAX and France's CAC on track for their weakest month for four years, hit by sliding Chinese stocks and prospects of a near-term U.S (Other OTC: UBGXF - news) . interest rate increase.

The euro zone's blue-chip Euro STOXX 50 index fell 1 percent going into the close of the trading session, while Germany's DAX and France's CAC each fell 0.9 percent.

The pan-European FTSEurofirst 300 index eased 0.5 percent, putting it on track also for its worst month since August 2011. Volumes were relatively thin as the UK market was closed for a public holiday.

The Federal Reserve left open on Friday the possibility of a September rate rise, although several of its officials said the prolonged turmoil in financial markets might delay the first policy tightening in nearly a decade.

Weaker Asian markets, coupled with more volatility in Chinese stock markets which have fallen sharply this month amid signs of a slowdown in the Chinese economy, also weighed on European equities.

"The Chinese markets remain in a sensitive position and most market participants remain bearish despite the positive swings experienced within the Shanghai Composite Index late last week," said FXTM research analyst Lukman Otunuga.

Shares (Berlin: DI6.BE - news) in ArcelorMittal (Other OTC: AMSYF - news) declined 5.6 percent after the company's South African division said it was planning to shut two mills in the country as the unit struggles with weak demand and lower prices.

French telecoms group Iliad (Paris: FR0004035913 - news) also fell 4.7 percent, with some traders citing disappointment over the free cash flow levels, even though Iliad reported higher interim profits.

On the upside, shares in Eni rose 1 percent after the Italian energy company announced the discovery off Egypt of the largest known gas field in the Mediterranean.

Europe bourses in 2015: http://link.reuters.com/pap87v

Asset performance in 2015: http://link.reuters.com/gap87v

Today's European research round-up (Additional reporting by Sudip Kar-Gupta; Editing by Alison Williams)