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(Reuters) - Even after a rare four-day rally in world stocks, investors are unlikely to let their guard down in a week filled with heavy U.S. and euro zone policy risks that could potentially disappoint again and trigger a sell-off.

There is no doubt gloom is widespread. However, investors are also beginning to realize that betting too strongly on a collapse of financial markets with policymakers poised for action to combat global crisis may be unwise.

Thursday's coordinated action by five major central banks to add liquidity to a European banking system struggling with its dollar funding needs has lifted world stocks, measured by MSCI .MIWD00000PUS, from a one-year low.

Focus in the coming week will be on a policy meeting of the U.S. Federal Reserve. The Fed is posed to increase downward pressure on long-term interest rates to spur the recovery, reviving "Operation Twist," first undertaken in the 1960s.

Despite the rally in the past week, the MSCI index is still down more than 9 percent since January and the third quarter performance looks set to be the worst since the June-September period in 2010.

Furthermore, against conventional wisdom, total returns on a 10-year rolling basis on government bonds are higher than on equities. This is providing much food for thought for long-term investors.

"In a very short term, positive news may come out and policymakers will announce something. Economic data is not as bad as falls in the market would've suggested. So over the next 4-6 weeks we could get slightly higher," said Jeremy Beckwith, chief investment officer at wealth manager Kleinwort Benson.

"Everyone is hoping policymakers are coming up with good ideas, although it's hard to see what good ideas are... The euro zone is such a huge issue and one day you could wake up and find out Greece has defaulted and get caught out. So our position is to underweight risk."

The euro rose more than 1 percent against the dollar last week, its biggest weekly gain since July. But analysts expect the single currency to come under pressure again in the coming week as EU finance ministers again failed to eliminate fears of Greek sovereign default at their weekend meeting.

EU finance ministers broke no new ground in dealing with the euro zone debt crisis and made no decision on whether to give more firepower to the 440-billion euro bailout fund, suggested by U.S. Treasury Secretary Timothy Geithner.

"The euro zone's medium term structural issues of excessive sovereign debt and banks' exposure remains unresolved," UBS said in a note to clients.

"Thus investors will continue to worry about the risk of Greece defaulting on its bonds over the next couple of quarters as well as the efforts of Spain, Portugal and Italy to tackle their own public finances. This will also keep investors fearful over the solvency - not just liquidity - of euro zone banks."

The coming week promises a heavy dose of policy actions.

Finance ministers of the BRIC emerging countries -- Brazil, Russia, India and China -- meet in Washington on Thursday, on the sidelines of the International Monetary Fund meeting, to discuss steps to offer support to the euro area.

If they buy euro-denominated bonds -- as suggested in preliminary talks -- this may help turn around sentiment, after the European Central Bank's 70 billion euro operation failed to stop the crisis from spreading to Spain and Italy.

Investors will also keep a close eye on U.S. President Barack Obama who is presenting a deficit-reduction plan on Monday that will cover the cost of his recent jobs bill.

POLICY EASING

There are signs monetary policy is shifting from withdrawing stimulus toward further easing at a global level -- which would also be supportive for asset markets in the long term.

The Fed has already pledged to keep its policy rate at record lows until at least mid-2013 and, in Operation Twist, may introduce a program involving buying long-dated Treasuries to lower mortgage rates and other long-term borrowing costs.

The Bank of Japan eased policy in August by boosting asset purchases and the ECB has signaled that it had halted a cycle of interest rate rises begun just five months ago.

Even in emerging markets, the tightening cycle seems to be nearly over. Brazil and Turkey have cut interest rates, Mexico and Chile's central banks have left the door open for easing, Israel and South Africa are expected to cut rates.

"Risk markets will rebound when everyone is short risk, the worst is priced in, data stop surprising on the downside and policymakers take decisive counter action," JPMorgan said in a note to clients.

"Our perception is that most investors are sitting on the fence and that there is no surplus of risk underweight positions... Policymakers across the world will likely try their best to prevent another contraction, and it is here that upside surprises could come from."