Multibillion losses reported last week by Bank of America and Citigroup were followed by the Royal Bank of Scotland's (RBS) forecast that its losses for 2008 could top $41.3bn.

RBS dropped 69 per cent in New York trading while Bank of America lost 29 per cent and Citigroup fell 20 per cent on Tuesday.

'Watchful eye'

Obama also indicated that Wall Street would see greater oversight.

"Without a watchful eye, the market can spin out of control," he said in his address outside the Capitol.

The Dow Jones industrial average fell 332.13, or 4.01 per cent, to 7,949.09, its lowest close since November 20, when the blue chips ended at 7,552.29 - their lowest point in more than five years.

While the Dow has fallen on about three-quarters of all Inauguration Days in the US, Tuesday's showing was its worst ever.

Broader stock indicators also fell sharply, with the Standard & Poor's 500 index falling 5.28 per cent and the Nasdaq composite losing 5.78 per cent.

Richard Cripps, the chief market strategist for Stifel Nicolaus, said the market's decline was interrupted by Obama's inauguration speech but that the markets then continued to trade on the problems in the financial sector.

"There's just tremendous fear and uncertainty in the banking sector," he said.