LONDON, Jan 6 (Reuters) - Bitcoin plunged another 12 percent on Friday after China's central bank urged investors to take a rational approach to the digital currency, which has is on track for its heaviest two-day falls in two years.
Bitcoin had gained more than 40 percent in two weeks to hit a three-year high of $1,139.89 on Wednesday, just shy of its all-time record of $1,163 on the Europe-based Bitstamp exchange .
But the digital currency - which has shown an inverse correlation to the Chinese yuan in recent months - plunged as the yuan soared on Thursday, falling as much as 20 percent at one point, before closing the day around 10 percent down on the day.
On Friday it fell to $887, having lost almost a quarter of its value since Wednesday's peak.
Bitcoin prices had showed abnormal fluctuations, the Shanghai head office of the People's Bank of China (PBOC) said in a notice. It stressed bitcoin is not a currency and cannot be circulated as a real currency in the market. (Reporting by Jemima Kelly; editing by Sujata Rao)