Sept. 26 (Bloomberg) -- European stocks fell for a fourth day this week after negotiations on the $700 billion U.S. bank bailout plan stalled and Washington Mutual Inc. was seized in the biggest American bank failure in history.

Royal Bank of Scotland Group Plc, the U.K.'s second-largest bank, slid 5.7 percent and Dexia SA, the world's biggest lender to local governments, lost 8.1 percent after Republicans said they wouldn't support the proposed rescue plan. Fortis tumbled 21 percent on concern it may struggle to bolster capital. Vestas Wind Systems A/S retreated 9.7 percent after Morgan Stanley cut its recommendation for the largest wind-turbine producer.

The Dow Jones Stoxx 600 Index decreased 1.9 percent to 265.92, extending the drop this week to 4.4 percent. The measure is down 27 percent in 2008 as more than $550 billion in writedowns and credit losses at banks worldwide pushed the global economy toward a recession.

``With the bankruptcy of Washington Mutual, the systemic risk has returned,'' said Benoit de Broissia, an equity analyst at Richelieu Finance in Paris, which oversees about $6.2 billion. ``One of the links in the chain has broken so we wonder if the chain is threatened,'' he said in a Bloomberg Television interview.

National benchmark indexes dropped in all 18 western European markets. The U.K.'s FTSE 100 fell 2.1 percent as shares of Old Mutual Plc declined. A retreat in oil prices weighed on energy producers including Total SA, helping push France's CAC 40 down 1.5 percent. Germany's DAX slipped 1.8 percent.

House Republicans

A group of House Republicans led by Eric Cantor of Virginia said they wouldn't support a plan based on the approach outlined by Treasury Secretary Henry Paulson and backed by President George W. Bush and Democratic leaders. The discord sent Paulson back into a late-night meeting on Capitol Hill with lawmakers. Lawmakers are set to meet again this morning.

``There's a lot of hesitation on the plan,'' said Pierre- Yves Gauthier, a founding partner at Alphavalue in Paris. ``This stalling is creating more worries. Politics have taken over.''

Marc Faber, managing director of Marc Faber Ltd. in Hong Kong, said the U.S. government's rescue package for the financial system may require as much as $5 trillion, seven times the amount Paulson has requested.

JPMorgan Chase & Co. bought WaMu's branch network for $1.9 billion after the thrift was seized by regulators. WaMu is the latest casualty of a financial crisis that drove Lehman Brothers Holdings Inc. and IndyMac Bancorp out of business and led to the hastily arranged rescues of Merrill Lynch & Co. and Bear Stearns Cos., which was itself absorbed by JPMorgan.

Growth Forecast

The worsening financial crisis will cause the U.S. economy to contract, JPMorgan said after cutting its growth forecast for the current quarter. The economy will stagnate in the three months through the end of September, the bank's economists wrote in a note, revising an earlier prediction of 0.5 percent growth.

A government report today showed the U.S. economy expanded at an annual rate of 2.8 percent in the second quarter, slower than the estimated 3.3 percent.

RBS shares retreated 5.7 percent to 208 pence. Dexia slid 8.1 percent to 10.05 euros in Brussels.

Money-market rates rose worldwide after talks on the rescue plan stalled, 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.

Fortis, Belgium's biggest financial-services firm by assets, sank 21 percent to 5.18 euros in Amsterdam as De Telegraaf reported clients of Dutch unit ABN Amro Holding NV may be moving to other banks. The stock retreated 35 percent this week.

`Flabbergasted'

The cost of protecting Fortis bonds from default surged to a record. Chief Executive Officer Herman Verwilst, speaking at a press briefing in Brussels today, said he's ``flabbergasted'' by the decline in the company's stock.

Bradford & Bingley Plc, the U.K.'s largest lender to landlords, lost 5.9 percent to 20 pence on concern it won't be able to raise money in capital markets.

Vestas Wind dropped 9.7 percent to 530 kroner. The company had its recommendation cut to ``underweight'' from ``equal- weight'' at Morgan Stanley, which said the stock looks ``unjustifiably expensive.''

The brokerage also cited ``early signs of softening demand among small developers'' and an increase in raw-material prices.

Rheinmetall AG retreated 6.8 percent to 39.33 euros after Merrill lowered its recommendation for the supplier of weapons for the U.S. Army's Abrams tank to ``neutral'' from ``buy.''

Insurers, Oil Shares

Insurance stocks will remain ``vulnerable to swings in both the credit and equity markets,'' Merrill wrote in a separate report, cutting Aviva Plc to ``neutral'' from ``buy.'' The U.K.'s biggest insurer by premiums fell 3.4 percent to 521.5 pence.

ING Groep NV and Old Mutual were lowered to ``underperform'' from ``neutral'' by the bank. ING shares lost 7 percent to 17.54 euros, while Old Mutual sank 9.7 percent to 79.3 pence.

Total, Europe's third-biggest oil company, declined 1.6 percent to 43.71 euros. BP Plc, the second-largest, lost 1.9 percent to 488.5 pence. Crude oil dropped as much as 3.5 percent to $104.25 in New York.

SBM Offshore NV slumped 7.4 percent to 15.73 euros after Goldman Sachs Group Inc. downgraded the world's biggest producer of floating oil production platforms to ``sell'' from ``neutral'' and added the stock to its ``conviction sell'' list.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.

Last Updated: September 26, 2008 12:13 EDT