New Orleans levees hold as Hurricane Gustav weakens

By Tim Gaynor and Matthew Bigg

NEW ORLEANS (Reuters) - Hurricane Gustav slammed ashore on the U.S. Gulf Coast just west of New Orleans on Monday but rebuilt levees appeared to be holding surging floodwaters out of the city devastated by Katrina in 2005.

The storm was weaker than had been feared. But waves splashed over and through cracks in floodwalls protecting the low-lying city, triggering a tense, hours-long watch over the barrier system that failed three years ago, flooding 80 percent of the city and stranding thousands of people.

Six inches of water pooled in some streets near the vulnerable New Orleans Industrial Canal and officials cautioned that while the levees had not been breached, they were still in danger. But some residents emerged from boarded up homes relieved to find only broken tree branches and toppled signs.

"We'll still get some nasty weather but we've dodged a big-time bullet with this one," said stockbroker Peter Labouisse, sitting on the porch of his home, which was shuttered and without power.

The storm roared through the heart of the U.S. Gulf oilpatch but oil and natural gas prices plunged as Gustav weakened to a Category 2 hurricane with 110 mph (177 kph) winds before landfall, easing fears of serious supply disruptions that had put energy markets on edge.

Oil companies had shut down nearly all production in the region, which normally pumps a quarter of U.S. oil output and 15 percent of its natural gas.

Exxon said it was shutting down its Baton Rouge refinery, the second largest in the United States, although the storm weakened to a Category 1 hurricane with 80 mph (129 kph) winds as it moved inland.

Mindful of the ravages of Katrina, which killed some 1,500 people, nearly 2 million people fled the Gulf Coast as Gustav approached and only 10,000 were believed to have remained in New Orleans.

More than 14,000 National Guard troops and pilots were deployed to the Gulf Coast and the Department of Defense had authorized up to 50,000 troops. Soldiers are routinely deployed in U.S. disasters for rescue and clean-up and to prevent looting.

Louisiana Gov. Bobby Jindal warned residents it was too early to sound the all-clear.

"Just because the storm is moving over your area, do not think that the tidal surge impacts are yet over," he said.

Underscoring continued concern about the fragile flood barriers, officials in rural Plaquemines Parish told the handful of residents remaining to flee as a levee protecting 200 homes had been weakened by water surging over the top.

But waters appeared to be receding in the swollen Industrial Canal that cuts through New Orleans.

"All in all we think we are in pretty good shape, though we are not through yet," Corps Col. Jeff Bedey said.

Some officials noted that catastrophic breaches in the city's levees occurred a day after Katrina departed.