"We now risk falling into a deflationary spiral that could increase our massive debt even further," he said.

Although Obama called for a $175bn package to shore up the US' slowing economy, his latest address appeared to suggest he is contemplating an even wider plan to tackle the crisis.

'Historic crisis'

The president-elect faces a stern test in tackling US unemployment, which has risen to its highest level in 16 years according to the country's labour department.

In depth


Obama considers choices for next administration

Government figures also show the US housing market is in crisis with the number of foreclosures rising.

"The news this week has only reinforced the fact that we are facing an economic crisis of historic proportions," Obama said.

As Obama continues to assemble his next administration, sources within the Democratic party said that he has selected Timothy Geithner, the president of the New York Federal Reserve, to lead the US treasury.

The benchmark Dow Jones stock index rose more than six per cent on Friday after news of Geithner's reported selection emerged.

Obama selections

Obama is expected to formally announce that he has chosen Geithner on Monday, NBC, the US news broadcaster, reported.

Sources close to Obama said on Saturday that the president-elect is set to name Lawrence Summers as director of the National Economic Council, which will co-ordinate the federal response to the current economic crisis.

Summers, a former treasury secretary for Bill Clinton, helped steer a plan to tackle 1995 Mexico's economic crisis.

The reported selection of Summers came on the same day that Obama released a statement naming Robert Gibbs, a close aide, as his press secretary.

Meanwhile, General James Jones has emerged as the leading candidate for the post of national security adviser, ABC News, a US broadcaster, has reported. 

Economic focus

Democrats in congress have said that they will focus on the US economy when they reconvene in January.

The US economy has nosedived since major banks announced  in September that they were short of cash to service their operations.

Many economic experts have blamed the roots of the crisis on the country's biggest financial institutions for giving home loans to customers judged to be a credit risk who later failed to keep up with their payments.

In October, George Bush, the US president, announced a $700bn bailout package aimed at maintaining credit lines between banks.

But the credit crunch has now affected the wider economy, forcing companies in sectors as diverse as manufacturing and services to cut jobs and sales orders.