Barack Obama took office on Tuesday amid a deep economic downturn, a trillion-dollar federal deficit and a gasping bank sector, and the first African-American to become US president vowed to meet the challenges.
His aides promised to go to work immediately, armed with the authority to spend the second half of the $US700 billion ($1.1 trillion) financial rescue plan and a proposed stimulus package of $US550 billion in spending and $US275 billion in tax cuts.
Stock prices extended losses while Obama spoke as investors were disappointed they did not hear more specifics regarding his promises for bold and swift action. The Dow Jones Industrial Average lost about 4%, while both the S&P 500 and Nasdaq indexes lost more than 5%.
"People were looking for something, new plans, new hopes," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatam, New Jersey. "They didn't hear something new."
Obama said the country understood it was in the midst of crisis, mentioning war, a sagging confidence and an economy that was "badly weakened, a consequence of greed and irresponsibility on the part of some."
"Today I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, America -- they will be met," he said upon taking the oath.
Regulation
Obama also hinted at greater regulation, saying "this crisis has reminded us that without a watchful eye, the market can spin out of control."
The new president was riding a wave: A CBS News/New York Times poll showed 79% of Americans are optimistic about the next four years.
But that did not help the Dow, which was down more than 2% in early afternoon trade, extending the 2009 slump to nearly 8%.
Shares in major US banks were down double digits after State Street Corp, the world's biggest institutional asset manager, reported billions of dollars of unrealized losses in its commercial paper program and investment portfolio.
State Street stock plummeted 50% while Citigroup, Bank of America, JPMorgan Chase & Co and and Wells Fargo were all battered.
"It's very uplifting (Obama's inauguration) but I'm not sure it's sufficient. I don't really see this influencing medium-term investment decisions," said Marc
Chandler, head of global currency strategy at Brown Brothers Harriman.
"There still is a danger that we are doing too little rather than too much," he said in reference to the stimulus and financial rescue plans.
Pound gets a pounding
Europe's banking index fell to a 14-year low on fears that lenders will need more state help to raise capital. Shares of Lloyds dropped 31% and Barclays fell 17%.
On Monday, Britain threw its troubled banks a second multibillion-pound lifeline in three months and gave its central bank approval to pump cash into the ailing economy because interest rates were close to zero.
Concerns about the British banking sector pushed the British pound below $US1.39 for the first time since June 2001.
European shares fell 2% despite a better-than-expected ZEW analyst and investor sentiment index report in Germany. The monthly poll of economic sentiment by the ZEW economic think tank rose to -31.0 from -45.2 in December.
"This is mostly an expression of hope. The (ZEW) indicator is still clearly in negative territory. Nothing is changing in terms of the 2009 recession," said Gerd Hassel, an economist at BHF-Bank.
The Bank of Canada cut its benchmark interest rate 50 basis points to a 50-year low of 1%, the latest effort by the world's leading economies to combat recession.
Japan reported consumer confidence plunging to a record low last month in yet another sign of deepening recession.
Car crisis
Except for banking, no sector has been harder hit than carmakers by the financial crisis, the worst in 80 years.
Italy's Fiat took a 35% stake in Chrysler, launching a venture designed to secure the beleaguered US carmaker's future.
The deal aims to give the Italian carmaker the scale it needs to survive and let Chrysler expand its product portfolio to include small, less-polluting cars.
Separately, France said it may pump up to 6 billion euros ($11.8 billion) into the country's ailing car industry. Prime Minister Francois Fillon warned that automakers would have to safeguard jobs in return.
"There is an emergency. We need a massive response on the automobile sector's financing," Fillon said.
German Chancellor Angela Merkel, however, said the aid threatened to distort competition and was not a long-term solution to the struggling sector's problems.
EU Industry Commissioner Guenter Veheugen said the EU must watch efforts to rescue US carmakers to ensure they do not disadvantage European manufacturers.
Reuters
