Hurricane Earl slapped North Carolina's coast with rain, winds and heavy surf on Friday and swirled up the U.S. eastern seaboard towards New England and Canada as a weakened but still potent storm.

The impact of the Category 2 hurricane, still packing top sustained winds of 105 miles per hour (165 kph), appeared to be less than originally expected as Earl churned north parallel to the U.S. Atlantic coast hours after it was downgraded from a Category 4 hurricane.

The good news is that we dodged the bullet, North Carolina Governor Bev Perdue told CNN.

The storm proved to be not a dangerous storm, she said, adding that only minimal damage had been reported apart from beach erosion from surging waves on North Carolina's Outer Banks low-lying barrier islands.

Earl continued to lash the Outer Banks with tropical force winds and heavy rains on Friday morning. Flooding up to three feet (1 metre) was reported in at least one island village, along with scattered power outages. Whipped up waves surged over at least one road linking the islands.

But the storm was expected to have moved away from the region by late morning.

We did OK, we lucked out. We never lost power. Except for some screen damage, I don't see any real damage, said Mike Howe, a resident of Salvo on Hatteras Island.

The hurricane centre said tropical storm-force winds were likely to reach the coast from Virginia northward to Massachusetts later on Friday. A hurricane warning was in effect for Massachusetts, eastward around Cape Cod, including Martha's Vineyard and Nantucket Island.

Massachusetts Governor Deval Patrick declared a state of emergency, an administrative step that speeds storm relief.

While a direct U.S. landfall was not expected, Earl is forecast to spin northward along the coast during the Labour Day holiday weekend marking the end of the summer vacation season.

Forecasters warned that hurricane-force winds from Earl still extended out 70 miles (110 km) from its centre, so it would not necessarily require a direct landfall to inflict damage from strong wind and high seas.

At 8 a.m. EDT (1 p.m. British time), Earl's core was located about 130 miles (205 km) east-northeast of Cape Hatteras, and about 395 miles (640 km) south southwest of Nantucket, Massachusetts, the Miami-based U.S. National Hurricane Centre said.

GRADUAL WEAKENING SEEN

A gradual weakening was forecast during the next 24 to 36 hours but Earl was expected to remain a hurricane as it turned towards the northeast and headed for southeastern New England, which it would approach on Friday night.

The U.S. Census Bureau estimated 26 million people in coastal counties from North Carolina to Maine could feel Earl's effects by the weekend. At least 100,000 people were ordered to evacuate from North Carolina's Outer Banks islands as Earl approached the Atlantic shore.

As oil refineries, drilling platforms and nuclear power plants along the Atlantic coast monitored Earl's path, EnCana Corp said it suspended drilling and pulled personnel from a Nova Scotia rig in Canada.

Exxon Mobil said it had pulled nonessential staff from its Sable field in offshore Nova Scotia.

The U.S. Energy Information Administration said about 1.1 million barrels per day (bpd) of oil refining capacity lies in the likely U.S. affected area.

No storm has threatened such a broad swath of the U.S. shoreline -- the densely populated coast from North Carolina to New England -- since Hurricane Bob in 1991.

Behind Earl, Tropical Storm Fiona was moving north over the open Atlantic and was expected to pass near the British overseas territory of Bermuda late on Friday or early on Saturday morning.

The storm was packing top sustained winds of 50 mph (85 kph), the hurricane centre said.

(Additional reporting by Tom Brown, Kevin Gray and Jane Sutton in Miami, Joe Silha in New York; writing by Tom Brown and Kevin Gray; editing by Pascal Fletcher and Will Dunham)

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