* Dortmund shade Real 2-1
* Mancini takes the blame as City crash
* More misery for Milan
By Mark Meadows
LONDON, Oct 24 (Reuters) - Real Madrid, Manchester City, Arsenal and AC Milan suffered painful Champions League defeats on Wednesday which complicated their chances of progressing from an increasingly intriguing group stage.
German sides shone the brightest as Bundesliga champions Borussia Dortmund downed nine-times European Cup winners Real 2-1 at home while local rivals Schalke 04 pulled off a 2-0 win at Arsenal after Klaas-Jan Huntelaar's second-half opener.
His ex-side Milan, seven-times winners, continued their poor form with a 1-0 loss at a Malaga outfit who have suffered similar financial constraints to the Italians but who are coping much better and top Group C with maximum points.
English champions Manchester City, who failed to get out of the group phase last term, are risking the same ignominious exit this time after losing 3-1 at Ajax Amsterdam.
Big-spending City are bottom of Group D on one point from three of the six pool matches.
"I think that they played better than us, they played better football, probably it is my fault because probably I prepared badly this game," City boss Roberto Mancini told Sky Sports amid media criticism over switching defensive systems.
"I think that it is very difficult (to qualify)."
Zlatan Ibrahimovic scored again as Paris St Germain won 2-0 at Dinamo Zagreb to stay second in Group A behind Porto, who beat Dynamo Kiev 3-2 after Jackson Martinez's double, but fellow French side Montpellier fell 2-1 at home to Olympiakos Piraeus.
Montpellier are bottom of Group B on one point with the Greeks on three and Arsenal on six, a point behind conquerors and new leaders Schalke, who will reach the last 16 if they beat the fitful Londoners in Gelsenkirchen in the next game on Nov. 6.
Schalke, who warmed up for the match with a Bundesliga derby win in Dortmund, are the first non-English side to win a European game at Arsenal in nine years.
Huntelaar's thumping 76th minute finish and Ibrahim Afellay's tap-in 10 minutes later amid more loose defending marked a well-deserved win against a side who had just one shot on target and lost at Norwich City at the weekend.
Alexander Kerzhakov scored a 72nd-minute spot kick as Zenit St Petersburg edged out winless Anderlecht 1-0 to somewhat fortunately earn their first points this season and move one behind beleaguered Milan.
Rossoneri coach Massimiliano Allegri, whose club sold the likes of Ibrahimovic to balance the books without replacing them, is under increasing pressure following Joaquin's 64th-minute winner for Malaga having also missed a penalty.
In Dortmund's Westfalen Stadium, Jose Mourinho's Real were largely outclassed as the Germans went top of Group D.
Poland striker Robert Lewandowski fired the hosts into a deserved 36th-minute lead after a poor pass from defender Pepe but Real hit back two minutes later with a cute lob by Cristiano Ronaldo from the edge of the box.
Defender Marcel Schmelzer then put Dortmund back in front with a first-time shot in the 64th minute after a weak punch by Real keeper Iker Casillas, who otherwise kept his team in the game in easily the competition's toughest group.
"We could not use our chances up front," Mourinho said.
"We could have scored a goal but it was Dortmund who scored during what was our weakest phase in the game."
Juergen Klopp's side now have seven points from three matches, one above second-placed Real and four above Ajax with City languishing at the bottom needing a win at home to the Dutch side in two weeks to begin a miracle comeback.
City, in only their second Champions League campaign, took the lead in Amsterdam through Samir Nasri on 22 minutes after a well-worked move but they let their grip on the game go as Siem de Jong fired in just before the break.
Niklas Moisander then netted with an easy header from a corner to further expose City's defence and the zonal marking system as Ajax went 2-1 ahead early in the second period and Christian Eriksen's deflected effort had home fans in dreamland.
There were few shocks in Tuesday's group games with the likes of Barcelona and Manchester United winning despite scares. (Editing by Justin Palmer)