MANTEO, N.C. (Reuters)—Hurricane Earl slapped North Carolina's coast with heavy wind and surf Friday and then weakened as it swirled up the U.S. eastern seaboard toward New England and Canada as a much tamer storm than feared.

Forecasters downgraded Earl to a Category 1 hurricane with sustained winds of 80 mph as it churned away from the North Carolina shore, where its impact was less than originally expected.

But the hurricane, rated a fearsome Category 4 storm on the five-step Saffir-Simpson scale only a day earlier, still threatened some disruption of tourism and air travel in the Northeast during the Labor Day holiday weekend marking the end of the summer vacation season.

"For the most part, it appears we have dodged a bullet," North Carolina Gov. 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 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 did OK, we lucked out. We never lost power. Except for some screen damage, I don't see any real damage," said Mike Howe, a resident of Salvo on Hatteras Island.

The U.S. National Hurricane Center in Miami said tropical storm-force winds were likely to reach the coast from Virginia northward to Maine Friday night. A hurricane warning was in effect for Massachusetts, eastward around Cape Cod, including Martha's Vineyard and Nantucket Island.

Massachusetts Gov. Deval Patrick declared a state of emergency, an administrative step that speeds storm relief. Though relieved that Earl was losing strength, residents, businesses and boat owners in the beach communities of Cape Cod rushed to batten down.

While U.S. landfall was not expected, forecasters warned that hurricane-force winds still extended out 70 miles from Earl's center, so it would not necessarily require a direct hit to inflict damage from strong wind and high seas.

At 2 p.m. EDT, Earl's center was about 290 miles south-southwest of Nantucket, Mass., the National Hurricane Center said.

Further weakening forecast

But with Earl losing power faster than forecast as it crossed colder waters, hurricane center director Bill Read said: "It may even go below hurricane strength about the time it passes by southern New England overnight."

The center warned, however, that while most of the hurricane-force winds would stay offshore of Cape Cod, even a "small deviation" in course could bring Earl's full force to the coast.

The U.S. Census Bureau estimated 26 million people in coastal counties from North Carolina to Maine could feel Earl's effects by the weekend. No storm has threatened such a broad swath of the U.S. shoreline since Hurricane Bob in 1991.

As oil refineries, drilling platforms and nuclear power plants along the Atlantic coast monitored Earl's path, EnCana Corp said it suspended drilling and pulled personnel from a Nova Scotia rig in Canada.

Exxon Mobil said it had pulled nonessential staff from its Sable field in offshore Nova Scotia.

ConocoPhillips said it implemented hurricane response plans at its 238,000 barrel per day refinery in Linden, N.J., and a 185,000 bpd refinery in Trainer, Pa., but operations remained unaffected.

The U.S. Energy Information Administration said about 1.1 million barrels per day of oil refining capacity lies in the likely U.S. affected area.

Continental Airlines said it canceled 60 departures on Friday out of its Newark, New Jersey hub for its Continental Express and Continental Connection regional operations. Many U.S. airlines were allowing customers in affected areas to change their weekend flight plans without penalty.

On the resort island of Nantucket, authorities closed beaches and planned to open emergency shelters on Friday.

The Canadian Hurricane Centre warned residents in parts of the Canadian Maritimes to be on alert for tropical storm conditions, with winds gusting up to 70 mph.

In Nova Scotia, where Earl is due to make landfall early on Saturday, residents stocked up on emergency supplies.

Behind Earl, Tropical Storm Fiona weakened as it moved north over the open Atlantic toward Bermuda. It had top sustained winds of 45 mph and was expected to weaken further as it passed near the British territory Saturday.