* Heavy rainfall, little flooding in New Orleans
* Tidal surge hits low-lying coastal areas
* Another storm strengthening - hurricane center (Adds Alabama fatality, updates oil outage figures)
By Kathy Finn
NEW ORLEANS, Sept 4 Tropical Storm Lee crawled onto southern Louisiana's coast on Sunday as New Orleans' flood defenses appeared to pass one of their biggest tests since Hurricane Katrina devastated the city in 2005.
The National Hurricane Center said Lee's center was about 110 miles (177 km) west-northwest of New Orleans, with maximum sustained winds of 45 mph (72 kph) at around 2 p.m. EDT (1800 GMT), and tropical storm-force winds extending 275 miles (445 km). The storm picked up speed and was moving at 8 mph (12 kph).
Winds were expected to weaken gradually in the next couple of days and up to 20 inches (51 cm) of rain was expected to fall on southeast Louisiana, the Miami-based center said.
The storm has temporarily shut over 60 percent of offshore oil production.
In New Orleans the storm recalled Hurricane Katrina, which flooded 80 percent of the city, killed 1,500 people and caused more than $80 billion in damage to the tourist destination. Lee has dropped nearly 11 inches (28 cm) of rain on New Orleans since it developed late last week.
Half the city lies below sea level and is protected by a system of levees and flood gates.
Some street flooding was reported, but the city's massive pumping system kept ahead of the volume and diverted the waters into Lake Pontchartrain.
"There's not a whole lot of flooding anywhere, so things are OK," said Jerry Sneed, deputy mayor of public safety. "We're ready for the next round."
Low-lying parishes around New Orleans did not fare as well, as Lee's winds drove a tidal surge over levees and onto roads.
"For a while we got some false hope that we might be out of the woods, but we realized overnight we would get more rain," Lafourche Parish spokesman Brennan Matherne said. "We're getting call after call about street flooding."
New Orleans' festive spirit endured the rain. A parade for the Southern Decadence festival, a gay and lesbian event expected to draw 100,000 people, was to continue as planned, city police said.
There were isolated reports of flooding in roads and homes. No injuries or fatalities were reported in Louisiana.
Wet conditions associated with the storm appear to be a factor in an early-morning car wreck in Mobile, Alabama, that killed one man and left several injured.
New Orleans is under a flash flood watch through Monday night, the National Weather Service said. Potential damage from wind gusts also will be a concern, it said.
Lee's tidal surge could spur more coastal flooding in Louisiana, as well as in Mississippi and Alabama, before drenching a large swath of the Southeast and Appalachian regions in the coming days.
Storm winds have already pushing Gulf waters inland, slamming barriers in low-lying areas such as Lafourche Parish and prompting mandatory evacuations in the coastal communities of Lafitte, Crown Point and Barataria.
In Mississippi, local governments were taking precautions as forecasters predicted tides could be 2 feet to 4 feet (0.6 metres to 1.2 metres) above normal.
About 11,500 houses were without electrical power due to the storm late on Saturday, down from about 38,000 earlier, according to utility Entergy Corp.
More than 60 percent of U.S. offshore oil production, all based in the Gulf of Mexico, and over 44 percent of offshore gas production were shut as of Saturday, according to the U.S. government. Most of that output should quickly return once the storm passes. [ID:nWEN7921]
Major offshore producers like Royal Dutch Shell (RDSa.L), Exxon Mobil Corp (XOM.N) and BP Plc (BP.L) (BP.N) shut down platforms and evacuated staff late last week.
For a factbox on outages click on [ID:nN1E7810TM]
Shell, Exxon and Anadarko Petroleum Corp (APC.N) have started to return workers to offshore platforms.
Low-lying refineries in Louisiana that collectively account for 12 percent of U.S. refining capacity were watching the storm closely, but reported no disruptions.
In the open Atlantic on Sunday, Hurricane Katia strengthened rapidly to a Category 2 storm.
Katia had top sustained winds of 100 mph (160 kph), the hurricane center said, but it was too soon to gauge the potential threat to land or the U.S. East Coast from the storm, which could become a "major" hurricane with maximum sustained winds of at least 111 mph (178 kph) on Monday [ID:nN1E783030]. (Additional reporting by Kristen Hays in Houston, Tom Brown in Miami and Kelli Dugan in Mobile, Alabama; Writing by Chris Baltimore; Editing by Xavier Briand)