Tropical Storm Danny seen skirting northeast U.S.

Tropical Storm Danny is seen 445 miles (716 km) west of the Bahamas in this National Oceanic and Atmospheric Administration (NOAA) satellite image taken at 1500 GMT on August 26, 2009.

MIAMI (Reuters) - Tropical Storm Danny weakened in the Atlantic Ocean on Thursday and was no longer expected to become a hurricane, but it edged closer to the U.S. coast on a path that could take it to Canada's Atlantic provinces by Sunday.

Storm alerts were issued for the North Carolina coast and residents of the U.S. eastern seaboard from the Carolinas to New England were urged to monitor Danny, the fourth tropical storm of the 2009 Atlantic season.

The storm's sustained winds dropped to 50 miles per hour (80 km per hour) from 60 mph as it wobbled westward at about 2 mph, the U.S. National Hurricane Center said. It was expected to start moving more quickly and turn toward the northwest later on Thursday.

At 5 p.m. EDT (2100 GMT) its center was about 545 miles south-southeast of Cape Hatteras, North Carolina, and a tropical storm watch, alerting residents to possible storm conditions within 36 hours, was issued for the coast from Cape Lookout to the town of Duck.

NO HURRICANE THREAT

Forecasters no longer expected Danny to become a Category 1 hurricane, the lowest rank on the five-step Saffir-Simpson intensity scale. Its maximum sustained winds were expected to peak at 70 mph, just below hurricane strength.

Danny's most likely track would take it just offshore from North Carolina's vulnerable Outer Banks by early on Saturday and later that day toward Martha's Vineyard, Massachusetts, where U.S. President Barack Obama is vacationing this week.

It could also bring blustery weather to Boston, where Senator Edward Kennedy's funeral is scheduled on Saturday.

The path would take it over Canada's Atlantic provinces by Sunday. The energy-producing region exports oil, natural gas and refined products to the U.S. Northeast and elsewhere.

Tropical storms and hurricanes are tracked closely by energy traders concerned about disruptions to oil and gas production in the Gulf of Mexico and Canada's Atlantic region, and by commodities traders for damage to citrus, cotton and other crops.

Pricing of insurance-linked securities, which transfer insurance risks associated with natural disasters to capital markets investors, and can be used to hedge other weather risk exposures, can also be affected by the future path of a storm.

(Editing by Jim Loney and Editing by Sandra Maler)