(Updates with Dudley to be named to head NY Fed, paragraph 4)
By David Lawder and Glenn Somerville
WASHINGTON, Jan 26 (Reuters) - Timothy Geithner won confirmation as U.S. Treasury secretary on Monday and vowed to act quickly to protect the U.S. economy from the worst financial crisis since the Great Depression.
"We are at a moment of maximum challenge for our economy and our country," Geithner said as he was sworn into office shortly after the Senate approved him on a 60-34 vote.
Faced with a full-blown crisis, senators largely set aside misgivings about Geithner's failure to pay some taxes earlier this decade in light of his experience in battling the financial storm as head of the New York Federal Reserve Bank, a post he relinquished on Monday.
William Dudley, a top executive at the New York Fed, will be named on Tuesday to succeed Geithner, a source familiar with the decision said. [ID:nN26396469]
Geithner will immediately start work on a massive overhaul of the $700 billion U.S. financial rescue program and is expected to propose new efforts to unclogged frozen credit markets within the next two weeks.
"At this moment of challenge and crisis, Tim's work and the work of the entire Treasury Department must begin at once," President Barack Obama said as Geithner was sworn in. "We cannot lose a single day because every day the economic picture is darkening, here and across the globe."
The new administration, which is already pushing Congress to approve an $825 billion economic stimulus package, may need to go back to lawmakers to ask for more funds to clean up the banking system, possibly through the creation of a government-run "bad bank" to soak up distressed assets.
"I don't want to prejudge what the parameters might be or the decisions that might ultimately be made," White House spokesman Robert Gibbs told reporters.
TEPID SUPPORT
Some lawmakers were disturbed enough by Geithner's late payment of $34,000 in self-employment taxes to vote against the nominee even though they felt he was well suited for the job otherwise. Only 10 Republicans voted in support, while three Democrats opposed him.
"I would rather have a battle hardened veteran at the helm who knows the shoals and whirlpools than a neophyte who has to wade into these churning waters for the first time," Republican Sen. Orrin Hatch of Utah said in explaining his support.
Geithner, who took the helm at the New York Fed in November 2003, has now joined a new administration already working hard to craft measures to help the recession-mired economy.
At a congressional hearing on his nomination last week, he promised an overhaul of the government's crisis response that would aim to ease the housing crisis, aid consumer credit markets and shore up the banking system.
He also pledged a greater effort to track the taxpayer-supplied funds that are being pumped into banks by the Treasury. Many lawmakers have complained that banks have not used the funds to increase their lending.
"On the challenges, they are monumental and extraordinary. But this is going to be more than a one-man show, this is going to be a whole team effort by Treasury and by the administration," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities.
FAMILIAR TURF
Even before confirmation, Geithner stirred controversy by saying that Obama believes China, the largest holder of U.S. government debt, is "manipulating" its yuan currency.
The move unsettled investors and drew a swift rebuke from Beijing, which labelled the comments a "misrepresentation" and a justification for trade protectionism. The White House on Monday said Geithner's comments were not an official "determination" of manipulation.
Geithner's route to Treasury secretary initially appeared all smooth sailing until revelations earlier this month that he had underpaid taxes for several years. He apologized for the errors, calling them "careless."
Geithner has a long-standing familiarity with the Treasury Department. His service there dates back to 1988 when he began a climb upward to undersecretary for international affairs from 1998 to 2001 under former Treasury Secretaries Robert Rubin and Lawrence Summers during the Clinton administration. (Additional reporting by Kristina Cooke in New York; Editing by Tomasz Janowski)