LONDON/NEW YORK (Reuters) – Barack Obama prepared to take office on Tuesday with bank shares tumbling, Japanese consumer sentiment slumping and the car sector teetering, and the new U.S. president has vowed to act quickly on stimulating the economy.

The first African-American to become U.S. president will take his oath against a backdrop of a deep economic downturn, a trillion dollar federal deficit and fears of more bank losses.

His aides will go to work immediately after Obama takes the oath of office at noon EST, armed with the authority to spend the second half of the $700 billion Troubled Asset Relief Program (TARP) and a proposed stimulus package of $550 billion in spending and $275 billion in tax cuts.

“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.

Obama takes office 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 Dow (DJI:^DJI – News) fell more than 1.5 percent in early trading, extending its losses for the year to about 7 percent. (^N – News)

Shares in major U.S. banks were down double digits after State Street Corp (NYSE:STT – News), the world’s biggest institutional asset manager, posted rising unrealized losses in its commercial paper program and investment portfolio.

State Street stock plummeted 50 percent while Citigroup (NYSE:C – News), Bank of America (NYSE:BAC – News), JPMorgan Chase & Co (NYSE:JPM – News) and Wells Fargo (NYSE:WFC – News) were all down.

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 (LSE:LLOY.L – News) and Barclays (LSE:BARC.L – News) fell particularly sharply.

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 – News)

Concerns about the British banking sector pushed the British pound below $1.39 for the first time since June 2001.

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.

European shares (^FTEU3 – News) 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.

“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, economist at BHF-Bank.

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 (Milan:FIA.MI – News) took a 35 percent stake in Chrysler, launching a venture designed to secure the beleaguered U.S. 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 ($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)

source: Yahoo Finance

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