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By Jeremy Gaunt, European Investment Correspondent
The dollar was stronger, however, with Britain's pound plunging on worries about the UK's banking system.
World stocks as measured by MSCI <.MIWD00000PUS> were down close to 1 percent, led by Asian shares. Emerging markets equities <.MSCIEF> lost 1.7 percent and Japan's Nikkei average <.N225> closed down 2.3 percent.
European shares were faring slightly better but the FTSEurofirst 300 <.FTEU3> was nonetheless down 0.2 percent.
U.S. stock futures fell in early trading as Wall Street prepared to re-open after the Martin Luther King Jr holiday and the world's attention was focused on Obama's inauguration.
Obama is to push a huge stimulus package to move the world-leading U.S. economy out of its severe slump.
"The market is refocusing on the bigger global picture," said Justin Gallagher, head of Sydney sales trading at ABN AMRO, pointing as well to expectations for weak corporate earnings results in coming weeks.
"Clearly the market today continues to factor in more disappointment and certainly, despite the inauguration of Obama ... the market is looking past that now and realizing just how big a mess the global economy is in," he said.
Banks were is focus after Royal Bank of Scotland
RBS was up 14 percent, but only after having plunged 67 percent on Monday.
"After yesterday's carnage, the smoke is still hanging over the market," said Justin Urquhart Stewart, director at Seven Investment Management.
"People talk about the nationalization of the banks. That's almost beside the point, like interest rate cuts. What we have is the nationalization of banking policy."
POUND PLUNGES
The pound plunged to a seven-year low against the dollar on the banking sector woes, while the euro dropped to a six-week low against the U.S. currency, weighed by worries about the state of the euro zone economy.
Sterling was 2.9 percent down against the dollar at $1.4040, its weakest level since 2002, while the euro fell 1 percent to $1.2971, having hit a six-week low of $1.2923.
Fears about the outlook for the euro zone economy weighed on the euro after the European Commission on Monday issued a grim 2009 forecast and Standard and Poor's cut Spain's debt ratings.
"The Obama euphoria is dollar positive, and the biggest casualty of this is sterling because by contrast sterling sentiment is really bad," Commerzbank currency strategist Antje Praefcke said.
Euro zone government bonds stabilized on Tuesday after a sharp sell-off the previous session.
Bonds issued by euro zone countries other than Germany remained under pressure after recent downgrades of Spain and Greece.
Two-year yields were 0.3 basis points lower at 1.499 percent, with 10-year yields up 2 basis points at 3.012 percent.
The yield spread between Belgian bonds and benchmark German Bunds climbed to 119.5 basis points, while the equivalent Dutch spread hit 75.6 basis points, the highest since the launch of the euro.
"It's contagion from the downgrades that we've seen in the last few days. It's moving from one country to the next," said Nomura rate strategist Sean Maloney. "People are speculating who might be next."
(Additional reporting by Rebekah Curtis, Rafael Nam, Jessica Mortimer and Kirsten Donovan; Editing by Andy Bruce)
