The dollar rebounded from record lows against the euro on Wednesday, brushing aside a steeper-than-expected fall in August durable goods orders as buyers took advantage of cheap exchange rates.

The economic data provided more evidence of a slackening in economic activity, strengthening the case for a second Federal Reserve interest rate cut next month. Another cut would further reduce the appeal of the dollar's yield after last week's half-percentage-point reduction in the federal funds rate target to 4.75 percent.

A lot of bad news is already factored in. The market is anticipating that the Fed will cut interest rates again at least once more this year, and a lot of this has already been taken into account, said currency trader Mark Meadows at Tempus Consulting in Washington.

The euro was last trading at $1.4123 in New York, down 0.2 percent on the day, after racing to an all-time high of $1.4162 in European trade, according to Reuters data.

The dollar rebounded from near 1992's all-time low against a basket of six major currencies, The dollar index was last trading at 78.503, up 0.3 percent on the day.

There is going to be resistance ... for more dollar selling into these levels just because the market seems to be placed for a little bit of a pull-back, said Meadows.

The euro has appreciated nearly 4 percent against the dollar so far this month.

Traders warned that the greenback's recovery on Wednesday could be short-lived due to the market's increased focus on the possibility that Gulf currencies will no longer be pegged to the dollar.

Last week's Fed rate cut exacerbated revaluation pressures in the region, adding to the inflationary impact of a generally weak dollar, they said.

If there is any change in the dollar peg, then we would see new highs in euro/dollar pretty soon, said Sultan Lone, deputy global head of FX sales and trading at market maker Swiss Finance Corp.

Saudi Arabia's Central Bank Governor Hamad Saud al-Sayyari said on Wednesday that the world's largest oil exporter would not change its foreign exchange policy because the U.S.-dollar peg offered flexibility.

Against the yen, the dollar rose 0.6 percent to 115.41, driven by gains in European stock markets. U.S. stocks opened stronger on Wednesday.

Yen trading pretty much depends on equity markets. European markets are up today, which is pushing the yen weaker against the dollar, said Tempus Consulting's Meadows.

New orders for long-lasting U.S.-made manufactured goods fell 4.9 percent in August, well ahead of the 3.1 percent decline Wall Street economists had forecast, after rising a revised 6.1 percent in July.

August's decline was steepest in seven months, but analysts said the numbers are notoriously volatile.

(Additional reporting by Gertrude Chavez-Dreyfuss in London)