By Daniel Trotta
NEW YORK (Reuters) - Barack Obama took office on Tuesday with bank shares tumbling, the car sector teetering and a world economy in tatters, and the new U.S. president vowed to meet the daunting challenges.
The first African-American to become U.S. president swore to preserve, protect and defend the Constitution against a backdrop of a deep economic downturn, a trillion dollar federal deficit and fears of more bank losses.
His aides vowed to go to work immediately, armed with the authority to spend the second half of the $700 billion financial rescue plan and a proposed stimulus package of $550 billion in spending and $275 billion in tax cuts.
"That we are in the midst of crisis is now well understood," the new president said, mentioning war, a battered economy and sagging confidence.
"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.
Obama is riding a wave: A CBS News/New York Times poll showed 79 percent of Americans are optimistic about the next four years. At the same time, George W. Bush leaves the White House as one of the most unpopular presidents in history, with his approval rating at 22 percent.
"The inauguration is crystallizing all expectations that the U.S. economy will be the first to recover from the recession," said Marco Annunziata, global chief economist at UniCredit, Italy's second-biggest bank, in London.
But that did not help the Dow <.DJI>, which was down about 2 percent at midday, extending its losses for the year to more than 7 percent. <.N>
Shares in major U.S. banks were down double digits after State Street Corp
State Street stock plummeted 50 percent while Citigroup
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
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.
"After yesterday's carnage, the smoke is still hanging over the market," says Justin Urquhart Stewart, director at Seven Investment Management. <.EU>
Concerns about the British banking sector pushed the British pound below $1.39 for the first time since June 2001.
European shares <.FTEU3> fell 2 percent 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
The Bank of Canada cut its benchmark interest rate 50 basis points to a 50-year low of 1 percent, 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 worst financial crisis in 80 years.
Italy's Fiat
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 ($7.79 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 U.S. carmakers to ensure they do not disadvantage European manufacturers.
(Reporting by Reuters bureaus worldwide; Editing by Brian Moss.)
