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 U.S. 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 $700 billion financial rescue plan and a proposed stimulus package of $550 billion in spending and $275 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.

"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.

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 percent of Americans are optimistic about the next four years.

But that did not help the Dow <.DJI>, which was down more than 2 percent in early afternoon trade, extending the 2009 slump to nearly 8 percent. <.N>

Shares in major U.S. 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 percent while Citigroup , Bank of America , JPMorgan Chase & Co 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.

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