NEW YORK, April 7 (Reuters) - The U.S. dollar hovered near a two-week low against a basket of currencies on Wednesday, as profit-taking and weakness in U.S. yields exerted pressure.

Market participants were hesitant to place big directional bets ahead of the Federal Reserve's meeting minutes later in the day, and the dollar traded little-changed against most of the majors.

The U.S. Dollar Currency Index , which measures the greenback against a basket of six currencies, was 0.101% lower at 92.213.

The dollar has appreciated this year along with Treasury yields as investors bet the United States would recover more quickly from the COVID-19 pandemic than other developed nations.

But the dollar index's 2.5% gain in March, the biggest monthly increase since the end of 2016, prompted some traders to book profits, analysts said. The weakness in Treasury yields after their rapid rally this year also added pressure on the dollar.

All of this has left investors wondering if the dollar weakness, which sent the currency to a near 3-year low earlier this year, may be set to resume.

"I don’t think it is necessarily time to say the USD is in a downward trend, but rather some of the support it had been seeing has faded to a degree," Stuart Cole, chief macro strategist at Equiti Capital in London, said.

Upbeat European data on Wednesday showing euro zone business activity bounced back to growth last month, also supported the common currency against the greenback.

Market participants await the release of Fed meeting minutes later in the session for hints about the Fed policymakers' views on rising yields.

"Investors will be scanning the minutes in search of any 'discomfort' among policymakers about rising inflation prospects and in parallel any hint that the discussion is migrating towards defining a timeline for tapering asset purchases," ING strategists wrote in a note.

"Any (even mild) hawkish signal surely bears the risk of hitting Treasuries, and providing some support to the dollar."

The Australian dollar fell against the dollar, down 0.4%

, while the New Zealand dollar was down 0.38% , both pausing their upward trajectory of the last two weeks.

The Canadian dollar also fell, hurt by a third wave of the COVID-19 pandemic in the country.

Sterling sank on Wednesday as profit-taking by traders after a strong first quarter for the British currency pulled it to a week's low against the dollar and its lowest in two weeks against the euro.

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(Reporting by Saqib Iqbal Ahmed and Elizabeth Howcroft; Additional reporting by Ritvik Carvalho and Joice Alves; Editing by Kirsten Donovan, Timothy Heritage and Barbara Lewis)

((Elizabeth.Howcroft@thomsonreuters.com; +44 02075427104;))