* Irene blamed for at least 15 deaths, NYC spared big hit
* Obama says danger not over, recovery will take time
* U.S. stock markets expected to open on Monday
* Irene downgraded to tropical storm as heads north (Adds Obama, latest updates)
NEW YORK, Aug 28 (Reuters) - Hurricane Irene swept through Manhattan on Sunday but reserved the worst of its fury for towns and suburbs up and down the northeast region where driving rain and flood tides inundated homes and cut power to millions.
On its march up the East Coast over the weekend, the storm left at least 15 dead, as many as 3.6 million customers without electricity, widespread flooding and thousands of downed trees. It forced the closure of New York's mass transit system, and the cancellation of thousands of flights.
President Barack Obama warned that the region's problems were far from over. "Many Americans are still at risk of power outages and flooding which could get worse in the coming days as rivers swell past their banks," Obama said, promising federal government help for recovery efforts.
By late Sunday afternoon, Irene was bringing tropical storm conditions to the six states of New England, still packing winds of 60 miles per hour.
It isn't immediately clear how much Irene will cost but in New Jersey alone, the damage is expected in "the billions of dollars," Governor Chris Christie told NBC's "Meet the Press."
With many thousands of homeowners in the region suffering flooding there will now be many questions over whether insurance policies offer cover and whether the federal government's flood program can handle the claims, especially at a time of austerity in Washington and in cash-strapped states.
New York City's 8.5 million people are not used to hurricanes and the city is plagued by aging infrastructure, leading many to issue dire warnings in recent days about what the hurricane could bring. Authorities had taken unprecedented steps to prepare, including mandatory evacuations and a total shutdown of mass transit systems, that will have had a major economic impact.
Mayor Michael Bloomberg said there were no reports of deaths or injuries in the city, though there were some close calls -- in Staten Island, firefighters with boats had rescued more than 60 people, including 3 babies, from 21 homes flooded with five feet of water, a fire department spokesman said.
While it weakened before it hit New York, the swirling storm still packed a wallop, especially in districts such as the Rockaways peninsula, a low-lying strip of land exposed to the Atlantic Ocean on the southeastern flank of the city. Authorities closed three bridges leading to the peninsula before the storm.
"It was like being in the hull of a ship," said Patricia Keane, 42, who stayed in her Rockaway home and lost power but then used backup generators to supply electricity to herself and four neighbors, who all had flooded basements.
On Sunday afternoon, about 370,000 city residents who had been ordered to leave their homes were told they could return.
Some very limited public transport was starting to resume with a few bus services running, but the head of the Metropolitan Transportation Authority said it was too soon to say when the New York subway system would return. Commuter lines that bring many people into the city from surrounding areas were also still out.
It all means that many who normally commute into Manhattan and elsewhere in the region will find it very difficult to get to work on Monday, though financial markets are expected to open as normal, albeit with reduced volume.
TAKE A LOOK on Irene [ID:nSTORM]
Reuters Hurricane Tracker r.reuters.com/san78n
National Hurricane Center www.nhc.noaa.gov
Skeetobite Weather www.skeetobiteweather.com
Weather Underground www.wunderground.com/tropical
Air travel was expected to resume on Monday.
"All in all we are in pretty good shape," Bloomberg said, adding that, while it would be a "tough commute" on Monday, there had been no long-term damage to the subway system.
New Jersey, home to hundreds of thousands of people who travel into New York each day, was hard hit by flooding, downed trees and power outages. More than 100 dams in the state were being monitored for spills from high water, and one downstream town, High Bridge, was evacuated, Christie said.
Bob McDonnell, the governor of Virginia which was hit earlier by the Hurricane, told CNN "We prepared for the worst but came out a little better than expected. Unfortunately now, four fatalities have been confirmed,"
"We've got some significant damage in some areas, from flooding, from wind, a lot of trees down, 2.5 million people or more without power in Virginia, that's the second largest outage in history," he said.
In North Carolina, where authorities confirmed at least six storm-related deaths since the hurricane made landfall on Saturday, Governor Bev Perdue was expected to request a federal disaster declaration.
The storm dumped up to eight inches of rain on the Washington region, but the capital avoided major damage.
As the storm moved north on Sunday, New England officials reported flooded roadways, trees downed over rail tracks and evacuations in some towns.
The storm zone stretched from Massachusetts' eastern islands of Martha's Vineyard and Nantucket to the western Berkshires mountain range, where authorities braced for dam failures because of the heavy rains.
SIGH OF RELIEF
In Manhattan, where some had predicted massive flooding in the financial district, there was about a foot of water in the streets at the South Street Seaport in Lower Manhattan before the tide began receding mid-morning.
Jeremy Corley, a 32-year-old web manager, was out in shorts and a rain jacket at the Seaport on Sunday morning. "I was watching the news on TV and they were way over-exaggerating how bad it is so I wanted to go outside and check it out," he said.
Nearby, a man was walking his two dogs through water that came up to the bellies of his pets. A mile or so further north, a man was seen kayaking in the street, though the water was not very deep and a cyclist was able to make his way along the same street.
Wall Street's financial district seemed largely unaffected as did Ground Zero, where the 10th anniversary of the Sept. 11 attacks is soon to be observed.
The impact was felt harder on Long Island. The waves at Long Beach, which faces the Atlantic Ocean, crested up over the boardwalk and onto the streets, taking with them a two-story life-guard station.
Jim Nolan, a 55-year-old architect, had a busy night at his Copiague home on the shore of a lagoon on the south shore of Long Island. He was keeping watch on his 34-foot cabin cruiser tied to a dock by a number of lines that broke during the night. "About 3 O'clock two snapped, two snapped about 4 or 5 o'clock and one snapped half an hour ago," Nolan said. "It was nice and warm so I put my bathing suit on and went out there to work on it with my son," Nolan said.
After Irene, weather watchers were keeping an eye on Tropical Storm Jose, which formed near Bermuda.
This year has been one of the most extreme for weather in U.S. history, with $35 billion in losses so far from floods, tornadoes and heat waves. (Additional reporting by Pascal Fletcher in Miami; Joe Rauch and Jim Brumm in Wilmington, N.C.; Tom Hals in Delaware; Claudia Parsons, Basil Katz, Edith Honan, Phil Wahba, Clare Baldwin, Jonathan Allen and Ernest Scheyder in New York; Alistair Bell, Malahti Nayak, Andy Sullivan, David Morgan and Lisa Lambert in Washington; Andrea Shalal-Esa in Ocean City; Michael Fitzpatrick in Long Branch, New Jersey; Grant McCool in Toms River, New Jersey; Writing by Claudia Parsons; Editing by Jackie Frank, Martin Howell)