* Yen gains more than 1 percent vs dollar, euro

* Investors shun risk, high yielding currencies sink

* Euro weighed on worries over European banks

* U.S. bailout plan talks to resume later on Friday (Recasts, updates prices, adds quotes, changes byline)

By Tamawa Kadoya

LONDON, Sept 26 (Reuters) - The Japanese yen gained broadly on Friday as investors cut risk exposure due to the stalling of a proposed $700 billion financial system bailout and closure of Washington Mutual in the biggest ever U.S. bank failure.

Investors rushed to buy the low-yielding safe haven Japanese currency, sending it more than one percent higher against the euro and dollar as European shares fell 2 percent, led by declines in banking stocks.

Shares in Dutch-Belgian bank Fortis (FOR.BR: Quote, Profile, Research) dropped 12 percent on Friday after hitting a 14-year low the previous day on fears that the bank could become the next victim of the financial market turmoil. Fortis denied liquidity problems. "Concerns over the European banking system have added to jitters over the U.S. bailout plan and the yen is picking up renewed support," said Ian Stannard, senior foreign exchange strategist at BNP Paribas.

At 1125 GMT, the dollar was down 1 percent against the yen JPY= at 105.31 yen, while the euro lost 1.2 percent to 153.77 yen EURJPY=. The euro was inched down against the dollar EUR= to $1.4601.