Sept. 26 (Bloomberg) -- Money-market rates rose worldwide after talks on a U.S. government rescue plan for banks stalled and regulators seized Washington Mutual Inc., deepening concern financial institutions will hoard cash and curb lending.

The euro interbank offered rate, or Euribor, for three-month bank loans jumped today to the highest level since the debut of the euro in 1999. One-month dollar loans were trading today at 4.4 percent, according to Patrick Jacq, a fixed-income strategist in Paris at BNP Paribas SA, France's biggest bank. The London interbank offered rate for such loans was at 3.71 percent yesterday, the highest since January.

``It's just a complete breakdown of the interbank lending market,'' said Sean Maloney, a fixed-income strategist at Nomura International Plc in London. ``We are now in a very fear-driven environment. Banks are no longer lending to each other.''

Money-market rates signal bank lending has seized up. Negotiations for a $700 billion rescue of the U.S. financial system faltered as some House Republicans said they wouldn't support the plan proposed by Treasury Secretary Henry Paulson. The discord sent Paulson back into a late-night meeting on Capitol Hill with lawmakers.

WaMu became the biggest bank failure in U.S. history after customers pulled $16.7 billion of deposits since Sept. 16 and its credit rating was slashed to junk as it faced $19 billion of losses on soured mortgage loans. The Seattle-based lender had insufficient liquidity and was unsound, the Office of Thrift Supervision said yesterday in a statement.

Central Bank Lending

JPMorgan Chase & Co. bought WaMu's branch network for $1.9 billion, becoming the biggest U.S. bank by deposits.

Fortis, the financial-services company that set out in June to raise 8.3 billion euros ($12.1 billion), slid for a second day in Brussels, extending yesterday's 6.3 percent decline after De Telegraaf reported that clients of Dutch unit ABN Amro Holding NV may be moving to other banks. Fortis said it has ``no liquidity issue.''

Credit-default swaps on Fortis rose 200 basis points to a record 472 as of 11:10 a.m. in London, according to CMA Datavision prices. Contracts on its subordinated debt climbed 279 basis points to an all-time high of 717.

A basis point on a credit-default swap contract protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. An increase indicates a deterioration in the perception of credit quality; a decline signals the opposite.

Stocks, Bonds

The three-month Euribor rate increased 2 basis points to 5.14 percent, while the rate for one month loans climbed 3 basis points to 5.01 percent, the highest level since December 2000, the European Banking Federation said today.

Stocks fell in Asia and Europe and bonds rose worldwide as concern mounted that a U.S. agreement to rescue financial institutions may be delayed.

The Libor-OIS spread, a measure of the availability of cash among banks, widened to the most on record yesterday, exceeding 200 basis points. It averaged 8 basis points in the 12 months to July 31, 2007, before the credit squeeze began.

Central banks in Europe said today they will let banks borrow dollars from them for a week in a fresh effort to ease money markets at the end of the quarter.

`Most Tension'

The European Central Bank lent banks $35 billion for seven days to stabilize financial markets after the collapse of Lehman Brothers Holdings Inc. The ECB said it received 52 bids for $82.5 billion in the liquidity-providing operation. Some 16 percent of bids were awarded at a marginal rate of 4.5 percent.

With the cost of borrowing dollars over three months jumping yesterday by the most since 1999, the European Central Bank, Swiss National Bank and Bank of England said they will auction a combined $74 billion in one-week funding. The Federal Reserve assisted by providing the ECB and SNB with access to $13 billion more of its currency, boosting the amount of dollars it makes available to counterparts to $290 billion.

The one-week maturity had ``the most tension'' because banks need funds to bolster balance sheets before the end of the third quarter, Jacq said. The U.S. plan ``is the key so that liquidity can improve. As long as confidence is not restored we will see tension in money markets,'' he said.

Losses, Writedowns

Singapore's three-month interbank offered rate for U.S. dollars rose 9 basis points to 3.778 percent, the highest in eight months. The spread between Australian three-month bank bills and swaps, a gauge of credit risk, increased 5 basis points to 0.935 percentage point, the widest in six months. Rates in Hong Kong fell after a run on the city's third-largest lender ended.

``The failure of Washington Mutual is likely to be a short- term shock,'' said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank AG in Tokyo. ``There are no lenders because counterparty risk, the risk whether money that is lent will be returned, is dominating the markets.''

Financial institutions around the world have posted almost $522 billion in losses and writedowns on assets linked to the collapse of the U.S. subprime-mortgage market since the start of last year.

The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, widened 8 basis points to 310 basis points. It rose yesterday to the most since Bloomberg began compiling the data in 1984. It was 111 basis points a month ago.

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

Last Updated: September 26, 2008 06:35 EDT