* Deutsche Bank pulls out of ABN asset sale talks
* Dutch PM, FinMin may have to testify on Fortis breakup
* State's loan deal with ING now also under question
AMSTERDAM, Sept 17 (Reuters) - A state rescue of the Netherlands' banking system came under grave threat on Thursday from the collapse of a vital asset sale deal between ABN AMRO and Deutsche Bank.
Coming two days after the European Commission said the Dutch government had given Dutch financial group ING (ING.AS) an unfairly good deal to guarantee a portfolio of troubled mortgage loans, the news raised major questions about the future of government plans for the troubled financial sector.
In the midst of the two crises an Amsterdam court struck another blow to the government, ruling that ex-Fortis shareholder group FortisEffect can call witnesses in its case for compensation over market losses.
"It really is a mess," said Paul Beijsens, an analyst at Theodoor Gilissen.
The Netherlands was forced into bold measures a year ago when a crisis of confidence and a liquidity crunch threatened most of the major Dutch banks. [ID:nLH689463]
In a matter of days, the government bought Fortis's Dutch operations for 16.8 billion euros -- including the pieces of ABN AMRO [ABNNV.UL] that Fortis had bought just a year earlier -- and pumped 10 billion euros into ING.
In January, it struck a deal to take most of a huge portfolio of mortgages from ING at 90 percent of face value, cutting the bank's risk profile and helping it shore up capital ratios.
The state planned to sell some ABN AMRO assets to Deutsche Bank (DBKGn.DE) as ordered by the EU, merge it with Fortis Bank Nederland [FORTH.UL] and take the combined group public. After nationalisation, the government sought to renegotiate the deal since the agreed sale would have generated losses.
Meanwhile, the state planned to collect 80 percent of the cash flow on the ING mortgage portfolio and turn what it said would be a tidy profit.
All of that looked in danger as Deutsche Bank pulled out of the deal after what sources described as a last-minute collapse in long-running negotiations to forge an agreement.
The move came amid signs that Brussels is intervening heavily in deals involving banks that have taken state aid.
The European Commission is threatening to break up Britain's Lloyds Banking Group (LLOY.L) and force asset sales and limit dominant market positions at Royal Bank of Scotland (RBS.L) and other European lenders who took help.
"The Dutch government still seeks a merger of ABN AMRO and Fortis Bank Netherlands, but this is in our view unlikely to get approved," Evolution Securities analyst Jaap Meijer said in a research note.
Meijer and other analysts said Deutsche Bank would most likely end up suing the Dutch state to win the deal it originally agreed to last year, where the German bank would buy commercial bank HBU, 13 advisory branches and two corporate client units.
Deutsche Bank declined to comment on the prospect.
Meijer told Reuters earlier Thursday he also expects the EU to force the state to reprice the ING loan deal at 80 percent of face value, which would push ING to raise fresh capital.
The finance ministry said Tuesday it is still in talks with the EU and hopes for a successful conclusion.
"Europe (the European Commission) cannot force a price on us. However Europe can keep saying the company is too strong in certain areas of the market and that there should be found a solution either in another way and that is what we are going to investigate," Finance Minister Wouter Bos told Dutch NOS television.
But Jonathan Todd, a spokesman for European Competition Commissioner Neelie Kroes, told Reuters ABN still must sell its commercial bank unit HBU, as planned, before it can be allowed to merge with Fortis Bank Nederland.
In the Foris saga, FortisEffect's attorneys say they mean to call Dutch Prime Minister Jan Peter Balkenende, Bos and former Belgian Prime Minister Yves Leterme, among others.
Balkenende's office responded by saying it was not actually clear from the ruling that he could be compelled to testify.
The governments of Belgium, the Netherlands, and Luxembourg injected capital into Fortis after investors lost confidence in the group at the end of September. Just five days later, the countries broke up the group along national lines because of a liquidity crunch.
FortisEffect told the Amsterdam-based court in June that some Fortis investors lost money because they did not get accurate information about the company during the week that spanned the two rescues. ($1=.6777 Euro) (Additional reporting by Aaron Gray-Block, Gilbert Kreijger, and Harro Ten Wolde in Amsterdam; Jonathan Gould and Philipp Halstrick in Frankfurt; Foo Yun Chee in Brussels; Steve Slater in London; Editing by David Cowell)