TORONTO - The Toronto stock market closed modestly higher after two days of big losses sparked by indications that the U.S. Federal Reserve is likely to start winding up a key element of its economic stimulus.

The S&P/TSX composite index was up 27.08 points to 11,995.66, while the Canadian dollar plunged 0.76 of a cent to 95.64 cents US -- its lowest close since late November 2011 -- amid a higher U.S. currency.

U.S. indexes also closed higher as buyers snapped up stocks also beaten down over two days of losses, with the Dow Jones industrials up 41.08 points to 14,799.4, the Nasdaq down 7.39 points to 3,357.25 and the S&P 500 index up 4.24 points at 1,592.43.

The sell-off began after the U.S. central bank said it could wind down its bond-buying program by the middle of next year, which traders took to mean that higher interest rates are on the way.

Markets have anticipated for weeks now that the Fed would cut back on its bond purchases, which had the effect of boosting the American dollar and bond yields.

But many investors were caught off guard by the speed with which the Fed is expected to wind up the program.