Hurricane Earl, which earlier in the week was a storm of major proportions that threatened the US East Coast, weakened to a tropical storm on Friday as it swirled offshore towards Canada.

Earl was delivering heavy rain and gusty winds to parts of New England en route to Canada's Atlantic provinces, but has caused far less damage than feared on its northeasterly path up the coast from North Carolina's Outer Banks.

Maximum sustained winds are down to 70 mph (110 kph) as Earl neared southeast Massachusetts, and were expected to weaken further overnight.

The storm, which is moving rapidly, is expected to pass Massachusetts' Cape Cod and nearby islands at around 2 a.m. (0600 GMT) and reach the coast of Nova Scotia on Saturday, the National Hurricane Center said.

The fading storm raised hopes that the Northeast will suffer only limited losses during the 3-day Labor Day holiday weekend, which airlines and other businesses bank on for a final flood of summer tourist dollars.

The hurricane center warned that Earl -- though no longer packing anywhere near the power of its peak ranking as a fearsome Category 4 storm on the five-step Saffir-Simpson scale -- could cause storm surges and localized flooding.

Tropical storm force winds could extend out 205 miles (335 km) from the storm's center, the center said.

Bullet dodged

As residents from Cape Cod to Canada's Maritimes prepared to wait out the storm, those that Earl had mostly bypassed further to the south breathed a sigh of relief.

"For the most part, it appears we have dodged a bullet," North Carolina Governor Bev Perdue said.

Minimal damage was reported other than beach erosion from fierce waves on North Carolina's Outer Banks low-lying barrier islands. Flooding up to 3 feet (1 meter) was reported in at least one island village, along with scattered power outages.

Waves surged over the road linking the islands, where 100,000 people were ordered to evacuate as Earl approached. But as the storm moved away, beaches and businesses reopened.

"We lucked out. We never lost power," said Mike Howe, a resident of Salvo on Hatteras Island.

Earlier on Thursday, many residents and business owners on Massachusetts' Cape Cod and the islands of Martha's Vineyard and Nantucket were busy boarding up windows with plywood in anticipation of much worse conditions.

The Coast Guard closed ports in southeastern Massachusetts and Rhode Island. Dozens of flights were canceled to the area, National Guard troops were standing by, and extra utility crews were in place to respond to any power outages.

Losing its punch    

At 11 p.m. EDT (0300 GMT Saturday), Earl's center was about 90 miles (150 km) south-southeast of Nantucket and moving rapidly, the hurricane center said.

For parts of the Massachusetts coast, Earl could still generate large, damaging waves and cause beach erosion. High surf was pounding Nantucket and Martha's Vineyard, with waves as high as 10 to 12 feet, local media reported.

Some streets in downtown Nantucket were reportedly flooded as the island was pelted by heavy rain. – Reuters