Yuan forwards fell on concern the eurozone's deepening debt crisis may derail the global economic recovery and prompt China to delay appreciation of its currency.

Standard & Poor's Ratings Services on Tuesday cut Greece's credit rating by three notches to junk, the first time a euro member has lost its investment grade since the currency's debut.

The firm also slashed Portugal's ratings by two steps to 'A-'. Global stock markets slumped, and the Chicago Board Options Exchange Volatility Index, popularly known as the fear gauge, jumped the most since October 2008.

"The magnitude of declines in US and European stocks has substantially reduced investors' appetite for risk," said Dariusz Kowalczyk, chief investment strategist for SJS Markets Ltd in Hong Kong. "Any emerging-market asset will fall under the current circumstances, and this specially applies to Chinese forwards as the likelihood of a yuan appreciation declines."

China's central bank set the yuan's central parity rate against the dollar at 6.8264 on Wednesday.

Twelve-month non-deliverable forwards fell 0.2 percent to 6.627 per dollar as of 8:47 am in Beijing, according to data compiled by Bloomberg. It was the lowest level for the contracts since April 20 and reflects bets the currency will strengthen about 3 percent.

Since the global financial crisis worsened in the second half of 2008 and hit Chinese economy hard, the yuan's value against the dollar has remained largely unchanged. But the Chinese economy has recovered steadily from the crisis - it expanded by 8.7 percent year-on-year in 2009, and, as its jobless rate remained high in recent months, the US has initiated a campaign to press China to appreciate the yuan, claiming that the "undervalued" yuan has caused US trade deficit with China and job losses.

China said that the US problem, namely, a low savings rate and high consumption rate as well as outsourcing of manufacturing capabilities - should be blamed for its trade deficit and job losses.

Its export policy, which restricts exports of high-tech products to China, is also a major factor behind its deficit, the Chinese side said.

"Yuan appreciation won't solve the problem of the US trade deficit," said Zhou Shijian, senior economist with the China-US Relations Research Center of Tsinghua University. "Appreciation of the yuan would lead to the shrinking of US debt to China."

China has spent a large portion of its $2.4 trillion foreign exchange reserves to buy US treasuries.

The dispute between two sides has seemed to be easing after the US delayed the release of its report - previously due for April 15 - on whether to name China a "currency manipulator".