HAMILTON, Bermuda (Reuters)—Hurricane Bill weakened slightly Friday as it followed a path between the U.S. East Coast and Bermuda, but the tiny British territory warned its residents to prepare for dangerous surf and possible flooding.

The core of the massive storm was expected to stay over the open Atlantic as it passes west of Bermuda early Saturday and east of Cape Cod in Massachusetts early Sunday. Bill was forecast to weaken to a tropical storm before skirting eastern Canada later Sunday.

The North American energy market was watching Bill because it could threaten oil and natural gas platforms and refineries in eastern Canada.

The U.S. National Hurricane Center said Bill, the first hurricane of the 2009 Atlantic season, had become a little less organized and its maximum sustained winds had dropped slightly to 110 mph.

It was a Category 2 storm on the five-step Saffir-Simpson scale of hurricane intensity, and its strength was expected to fluctuate in the next day or two.

At 2 p.m. EDT, the hurricane's center was 290 miles south-southwest of Bermuda. Bill was moving northwest and was forecast to curve to the north and then northeast as it approached cooler waters that would start to sap its strength.

The Miami-based hurricane center said Bermuda, a 20-square-mile British overseas territory that is a center for the global insurance industry, could expect "significant coastal flooding ... over the next day or two due to large and dangerous breaking waves generated by the hurricane."

Bermudian authorities warned the island's 68,000 inhabitants to be prepared.

"Stay off the roads, stay off the beaches and stay close to home—please think safety first," Bermuda's Acting Home Affairs Minister Walter Roban urged.

U.S. Secretary of State Hillary Clinton and her husband, former President Bill Clinton, wrapped up a brief private vacation on Bermuda and left the island ahead of the storm on Thursday, the State Department said.

Hurricane Bill's closest point of approach to Bermuda was expected to be Saturday morning, when the eye of the hurricane would be passing around 230 miles to the west.

The hurricane center said large swells generated by the hurricane—which whipped up dangerous surf and rip-currents—were already affecting Bermuda, the Bahamas, Puerto Rico and Hispaniola. Over the next day or two such swells would also be experienced on the U.S. East Coast and Canada's Atlantic maritime provinces.

High waves along the north coast of the Dominican Republic had caused some coastal flooding with damage to roads and houses.

The U.S. forecasters were also keeping watch on a small disturbance off the Atlantic coast of Africa, about 525 miles southwest of the Cape Verde Islands.

Any development would be slow and there was less than a 30% chance it would grow into a tropical cyclone in the next two days, they said.