Hurricane Gustav sent strong winds and lashing rains into New Orleans early yesterday, but the storm lost some of its power and was expected to move ashore to the west, sparing the city its full force.

Gustav weakened to a Category 2 hurricane shortly before making landfall, although it was already pounding Louisiana's coastal areas with torrential rain and hurricane force winds.

US crude oil futures slipped to below $114 a barrel yesterday morning as fears of major damage to oil facilities in the Gulf of Mexico eased.

Oil companies had shut down nearly all production in the region, which normally pumps a quarter of US oil output and 15 percent of its natural gas. Prices hit more than $118 per barrel in a special trading session on Sunday.

Nearly 2 million people fled the Gulf Coast in one of the biggest evacuations in US history and only 10,000 were believed to have remained in New Orleans. More than 11 million residents in five US states were threatened by the storm.

US forecasters said Gustav was carrying maximum sustained winds of around 175 kph, making it a Category 2 storm on the five-step Saffir-Simpson scale.

At 0900 Eastern Daylight Time (1300 Greenwich MeanTime), it was 32 km southwest of Port Fourchon, Louisiana, a key logistical support center for offshore oil rigs, and about 125 km southwest of New Orleans.

In the city, devastated by the flood waters from Hurricane Katrina three years ago, residents on talk radio reported some power outages, but also relief that the storm seemed to be less destructive than originally feared.

"It looks as though it is far less than we had expected but we are just beginning to see the full force of the hurricane," said David Blake, a talk show host.

The US National Hurricane Center said Gustav was still likely to toss up "an extremely dangerous storm surge" of up to 4.3 m that could test the holding power of rebuilt levees that failed during Hurricane Katrina.

Hurricane Katrina brought an 8.5 m storm surge that burst levees on Aug 29, 2005, and flooded some 80 percent of New Orleans, which sits partly below sea level. The city degenerated into chaos as stranded storm victims waited days for government rescue and law and order collapsed.

Police and several thousand national guard troops patrolled the empty city, sometimes in convoys of Humvees, as a curfew went into effect in a bid to prevent looting.

Gustav's approach had stirred uneasy comparisons to Katrina, the most costly hurricane in US history, which killed some 1,500 people and caused over $80 billion in damage almost exactly three years ago.