WASHINGTON - First lady Michelle Obama wore a sparkling yellow sheath dress with matching coat by Cuban-born American designer Isabel Toledo for the inauguration of her husband, a choice many applauded as a cheerful message of hope and a vote for the American fashion industry.

In some light, the embellished ensemble took on a pale greenish cast, co-ordinating nicely with green gloves from J. Crew and Jimmy Choo green patent pumps.

President Barack Obama wore a red tie and white shirt with his suit, topped with an overcoat adorned with an American flag pin.

Their daughters were style icons in their own right, with 10-year-old Malia in a double-breasted periwinkle-blue coat with a blue-ribbon bow at the waist, and Sasha, 7, in a pink coat with orange scarf and satin belt, a coral-coloured dress peeking out at the hem. Their coats were from Crewcuts by J. Crew.

The fashion industry has anxiously looked to the election of Obama for months, embracing his wife as an emblem and ambassador of modern style, who wears clothes from young designers as well as mainstream American retailers.

"What I recognized more than anything from our new first lady and Hillary (Clinton) and everyone else is that everyone was fresh," said fashion designer Kai Milla, wife of Stevie Wonder and an invited guest to the swearing-in ceremony.

The unusual shade of yellow "really popped" on Michelle Obama's complexion, Milla added.

Hamish Bowles, Vogue magazine's European editor-at-large who curated the Metropolitan Museum Costume Institute exhibit on Jackie Kennedy in 2001, said he sees a resemblance in the inaugural styles between the two first ladies. "She's off to an auspicious start," Bowles said of Obama.

"Mrs. Obama's choice today was appropriate, dignified and elegant, but it also had a considerable element of fashion panache," he added.

She has shown an ability to root out exciting and innovative styles in her backyard and there's been no need for her to look at European designers, Bowles noted. "She's finding great American talent."

A connection with American women

"What's so powerful about Michelle Obama is we all see ourselves in her. She's a modern woman who is fashionable and even flamboyant in her style and she is still taken seriously," said red-carpet and magazine stylist Mary Alice Stephenson.

"She's wearing that dress today for all of us. We're all wearing that dress with her. The dress is elegant, appropriate and has the individual style stamp of Michelle Obama and is timely for a woman in her 40s -- and she wears embellishment during the day. Hallelujah!"

"She is single-handedly breathing new life into designers like Narciso Rodriguez and Isabel Toledo, who have had a rocky past," Stephenson said.

Toledo, who just a few years ago unsuccessfully tried to infuse more modern style into the venerable Anne Klein label, is considered among the more avant garde U.S. designers.

The Obamas' look Tuesday contrasted with that of the outgoing Bushes, with Laura Bush in a dove-grey skirt suit and matching coat.

On the podium with the Obamas, Vice-President Joe Biden wore a navy Hickey Freeman suit he bought at the Nordstrom's in King of Prussia, Pa., paired with a blue tie, while his wife, Jill Biden, had on a bright red coat and high black leather boots.

Also catching style-watchers' eyes: Aretha Franklin singing to the immense crowd gathered at the Capitol in an over-the-top hat with an oversized bow and beading.

"Aretha is a larger-than-life personality; why shouldn't she wear a larger than life hat?" said Nicole Phelps, executive editor of Style.com.

Yet, she added, the grey colour of Franklin's hat was an attempt to yield the spotlight. "The fact that it was grey to match her outfit can be seen as an acknowledgment that it's the Obamas' day, not Aretha's, i.e., she's a star but she wasn't THE star today."