The National Hurricane Center said Lee's center was about 110 miles west-northwest of New Orleans, with maximum sustained winds of 45 mph at around 5 p.m. EDT, and tropical storm-force winds extending 275 miles. The storm was moving at 5 mph.

Winds were expected to weaken gradually in the next couple of days and up to 20 inches of rain was expected to fall on southeast Louisiana, the Miami-based center said.

The storm has temporarily shut over 60 percent of offshore oil production.

In New Orleans, the storm recalled Hurricane Katrina, which flooded 80 percent of the city, killed 1,500 people and caused more than $80 billion in damage to the tourist destination. Lee has dropped up to 13 inches of rain on New Orleans since it developed late last week.

Half the city lies below sea level and is protected by a system of levees and flood gates.

Some street flooding was reported, but the city's massive pumping system kept ahead of the volume and diverted the waters into Lake Pontchartrain.

Low-lying parishes around New Orleans did not fare as well, as Lee's winds drove a tidal surge over levees and onto roads.

"For a while we got some false hope that we might be out of the woods, but we realized overnight we would get more rain," Lafourche Parish spokesman Brennan Matherne said. "We're getting call after call about street flooding."

New Orleans Mayor Mitch Landrieu warned residents to stay alert for flash floods and high winds expected before Lee moves to the northeast on Monday.

"Let's not be lulled to sleep by the breaks that we've had," Landrieu said.

New Orleans' levees saw less stress because Lee's winds were too weak to drive a massive storm surge into the city, as was the case during Katrina.

"The levees at this point are really not being tested because the surge is not coming into the system," said Colonel Edward Fleming of the Army Corps of Engineers. "This is mainly a wind and a rain event."

New Orleans' festive spirit endured despite the rain. A parade for the Southern Decadence festival, a gay and lesbian event expected to draw 100,000 people, was to continue as planned, city police said.

There were isolated reports of flooding in roads and homes. No injuries or deaths were reported in Louisiana.

Wet conditions associated with the storm appeared to be a factor in an early morning car wreck in Mobile, Alabama, that killed one man and left several injured.

TIDAL SURGE

Lee's tidal surge could spur more coastal flooding in Louisiana, as well as in Mississippi and Alabama, before drenching a large swath of the Southeast and Appalachian regions in the coming days.

Storm winds have already been pushing Gulf waters inland, slamming barriers in low-lying areas such as Lafourche Parish and prompting mandatory evacuations in the coastal communities of Lafitte, Crown Point and Barataria.

In Mississippi, local governments were taking precautions as forecasters predicted tides could be 2 feet to 4 feet above normal.

Less than 1,000 houses were without electrical power due to the storm late on Saturday, down from about 38,000 earlier, according to utility Entergy Corp .

More than 60 percent of U.S. offshore oil production, all based in the Gulf of Mexico, and over 44 percent of offshore gas production were shut as of Saturday, according to the U.S. government. Most of that output should quickly return once the storm passes.

Major offshore producers like Royal Dutch Shell, Exxon Mobil Corp and BP Plc shut down platforms and evacuated staff late last week.

Shell, Exxon and Anadarko Petroleum Corp have started to return workers to offshore platforms.

Low-lying refineries in Louisiana that collectively account for 12 percent of U.S. refining capacity were watching the storm closely, but reported no disruptions.

In the open Atlantic on Sunday, Hurricane Katia strengthened rapidly to a Category 2 storm.