UPDATE 3-Angry W. House meeting roils Wall St bailout talks

(Adds McCain campaign statements, Frank comments)

By Kevin Drawbaugh and Thomas Ferraro

WASHINGTON, Sept 25 (Reuters) - Negotiations in the U.S. Congress toward a massive bailout for Wall Street fell into disarray on Thursday night after a contentious White House meeting, with lawmakers later offering conflicting reports about the position of presidential candidate Sen. John McCain.

The White House meeting -- attended by McCain, Democratic rival Sen. Barack Obama, President George W. Bush and lawmakers from both parties -- "devolved into a contentious shouting match," according to a statement from the McCain campaign.

"At today's cabinet meeting, John McCain did not attack any proposal or endorse any plan," the statement said.

Senior Democrats said they came away from the afternoon White House session with the impression that McCain was backing an entirely new Wall Street rescue plan, one differing markedly from a Bush administration proposal under discussion for days.

Massachusetts Democratic Rep. Barney Frank, chairman of the House of Representatives Financial Services Committee and a participant in the White House gathering, said negotiations could be set back by the confusion.

"House Republicans, in some kind of arrangement with McCain, went off to wherever. I don't know whether they're ready to negotiate this. Their thing was some totally different mortgage insurance plan ... that would clearly delay this for a week or more," Frank told reporters.

Frank has played a key role in talks over the Bush administration proposal, which would spend taxpayer money to buy up bad mortgage debt from distressed banks in an effort to free up capital markets clogged with billions of dollars of illiquid securities created during the home price bubble.

"We're not going to give up," Frank said, pledging that Democrats will not bring a bill to the floor that lacks support from both parties. But he added, "If the House Republicans continue to reject the president's approach, there's no bill."

Frank said negotiations would continue on Friday, but with no sign that House Republicans would take part.

COUNTER PROPOSAL

Bush's plan has met fierce opposition on Capitol Hill. Democrats have offered a counter-proposal adding provisions to impose more oversight; boost efforts to prevent foreclosures; give the government a stake in companies participating in the program; and limit executive pay of participating companies.

On Thursday, a small group of conservative House Republicans -- including Texas' Jeb Hensarling and Virginia's Eric Cantor -- offered their own alternative to the Bush proposal. Focused on mortgage insurance, the one-page alternative plan was presented to reporters at a briefing.

The plan calls for the U.S. government to offer insurance coverage for the roughly half of all mortgage-backed securities that it does not already insure. The Treasury Department would charge premiums to holders of the securities, under the plan.

It also called for temporary tax cuts and regulatory relief for businesses. In addition, financial institutions participating in the proposed program would have to disclose more about their mortgage asset holdings.