Investors may heave a sigh of relief this week that the U.S. Congress has finally approved a $700 billion crisis bailout package, but there is still plenty for markets to fear.

The focus on the financial crisis has to some extent become a distraction from the deterioration in the world economy that it now risks exacerbating.

Many market players are hoping that an expected interest rate cut from the Bank of England on Thursday will herald a round of similar - perhaps coordinated - moves from the European Central Bank and the U.S. Federal Reserve.

There will also be close attention to what leaders of the Group of 7 industrialized nations have to say about the crisis when they meet in Washington next weekend. On Monday, European Union finance ministers will round off the weekend meeting of EU leaders.

The overriding obsession for investors is that they want to see serious action by the authorities to persuade banks to start lending money again - essentially, to dislodge blockages in the arteries that feed world finance.

Such intervention, investors believe, will encourage financial markets and ultimately help long-term economic growth prospects.

"The authorities are starting to recognize how important confidence is as the currency of the financial system's stability," said Richard Batty, investment director at Standard Life Investments. "Their actions have had to increase in multiples of the size of intervention of just a few weeks ago."

Passage of the U.S. bailout plan Friday should go some way toward building confidence. The initial failure of the House of Representative to pass it on its initial run led to the biggest daily percentage decline in the Dow Jones industrial average since the stock market crash of 1987.

But investors clearly want and expect authorities across the world to do more.

This is both because the crisis has caused a wide dislocation in financial markets and because that very dislocation now threatens the already stuttering real economy beyond the immediate financial system.

Many markets have been battered. MSCI's benchmark all-country world stock index is on track for its worst year since it was created in its current form at the end of 1987. Standard & Poor's said on Friday that all of its 52 country stock indexes declined in September, from the Pakistan index's 4.12 percent loss to Iceland's 39.13 percent.

Developed world stock markets lost 12.19 percent, with the U.S. market down 9.29 percent.

In all, S&P said, it amounted to a $4.1 trillion loss for the month.

This turmoil has put investors in a bind. Equity markets are unlikely to recover until the blockages have been cleared from the credit markets, but a rush to safer investments has made many of them expensive and perhaps overloaded.

"It is probably too late to buy protection now," Michael O'Sullivan, head of global asset allocation at Credit Suisse's private bank, said .

Interest rate cuts have now taken center stage for many investors, who want to see monetary easing from central banks as well as the liquidity injections for banks that have been a feature of recent months.

In addition to the expected easing from the Bank of England, which is to cut its key rate at least 25 percent to 4.75 percent, others will be under scrutiny.

The Bank of Japan will meet Tuesday, but it is unlikely to take action.

More crucially for investors, on Tuesday the Fed is to release the minutes of its Sept. 16 meeting, a discussion that took place the day after the investment bank Lehman Brothers failed and Merrill Lynch was sold.

The market is pricing in sharp cuts from the Fed by the end of the month, with a near certainty of a half-point cut to 1.5 percent and with some expecting a drop of three-quarters of a point.

The European Central Bank also adopted a more dovish tone last week after leaving rates on hold.

"It is increasingly important for the major economies" to cut rates, said Sarah Hewin, a senior economist at Standard Chartered Bank.

"What we are seeing now are clear signs that there is a spillover from the financial crisis to the real economy," she said. "This warrants cuts in rates."

Some investors, indeed, have started looking beyond the current credit crisis and are warning that even when the worst of it has passed, the world still faces a poor economic climate.

Data like the U.S. September employment report released Friday showing employers cutting jobs at the steepest rate in five and a half years have underlined this strongly.

Goldman Sachs summed up the continuing mood of gloom in a note.

"While financial risks may be resolved by continued policy activism," it said, "the economic picture is unlikely to reverse quickly."

Originally published by Reuters.

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