By Guy Dresser
LONDON (Reuters) - Pressure on incoming U.S. President Barack Obama to act quickly on the global financial crisis was underlined on Tuesday by tumbling bank shares, a slump in Japanese consumer sentiment and a teetering car sector.
The first African-American to become U.S. president will take his oath against a backdrop of a deep downturn, a trillion dollar federal deficit and fears of more crippling bank losses.
European shares fell despite a better-than-expected ZEW analyst and investor sentiment index in Germany. The monthly poll of economic sentiment by the ZEW economic think tank rose to -31.0 from -45.2 in December.
Underscoring the dire state of the world economy, Japan reported consumer confidence plunging to a record low last month in yet another sign of deepening recession.
Investors remained rattled, despite the launch of a second UK bank bailout this week, and the less downbeat ZEW indicator.
"This is mostly an expression of hope. The
On Monday, Britain threw its troubled banks a second multi-billion pound lifeline in three months and gave its central bank the green light to pump cash into the ailing economy because interest rates are already close to zero.
But bank shares suffered more heavy losses on Tuesday.
Europe's banking index fell to a 14-year low on fears that lenders will need more state help to raise capital as recession bites and bad debts rise. Shares in Lloyds
Overall, world stocks were down 1.2 percent and in Europe, the FTSEurofirst 300 <.FTEU3> was 1.0 percent adrift with banks taking most toll on the index.
"After yesterday's carnage, the smoke is still hanging over the market," says Justin Urquhart Stewart, director at Seven Investment Management. <.EU>.
CAR CRISIS
The banking sector aside, no sector has been worse hit than carmakers by the worst financial crisis in 80 years.
Italy's Fiat
The deal will give the Italian carmaker the scale it needs to survive, while Chrysler can expand its product portfolio to include small, less-polluting cars.
Separately, France said it may pump up to 6 billion euros ($7.79 billion) of aid into the country's ailing car industry, but Prime Minister Francois Fillon warned on Tuesday 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.
His comments, at a summit on helping France's battered car industry, came after the head of PSA Peugeot Citroen
However, German Chancellor Angela Merkel said the aid threatened to distort competition wand was not a long-term solution to the struggling sector's problems.
And EU Industry Commissioner Guenter Veheugen said the EU must watch efforts to rescue U.S. carmakers to ensure they do not disadvantage European manufacturers.
BURDEN OF EXPECTATION
Obama's team has vowed to make bailout funds work harder to get credit flowing again to cash-starved consumers and companies and is expected to announce soon changes to the second half of Washington's $700 billion bank rescue scheme.
The incoming president is also working with lawmakers to launch a two-year $825 billion fiscal stimulus plan by mid-February.
In one of the most eagerly awaited inaugural addresses, Obama is expected to reassure Americans that the country can rebound from hard times.
But he faces stratospheric expectations.
"The expectations for the Obama administration are off the charts," said Willian Keylor, a history professor at Boston University. "Whatever he accomplishes will be below the extraordinary expectations that people have for him."
Economic figures due later this week and news of corporate shake-ups and downsizing are only likely to deepen the gloom.
German retailer Metro
And British luxury goods firm Burberry
Britain is set to confirm on Friday the world's fifth-largest economy is now in its first recession since 1992.
China, the world's main growth engine, on Tuesday reported its first rise in urban unemployment in five years. It will release Q4 GDP data on Thursday which are forecast to show annual growth at 7.0 percent, the slowest pace in nine years.
(Reporting by Reuters bureaus worldwide, Editing by Mike Peacock)
