As Gustav winds down, New Orleans eyes damage

* Gustav weakens to a tropical storm

* New Orleans levees hold so far, rural levees fragile

* Pentagon authorizes up to 50,000 troops for storm

* Oil, gas prices fall as threat to platforms eases

By Matthew Bigg and Tim Gaynor

NEW ORLEANS, Sept 2 (Reuters) - A still-largely deserted New Orleans on Tuesday prepared to take stock of damage from Hurricane Gustav after rebuilt levees appeared to hold off a repeat of the flooding caused by Katrina three years earlier.

Gustav roared through the heart of the U.S. Gulf oil patch but oil and natural gas prices plunged when Gustav weakened before landfall and spared key Gulf oil installations, easing fears of serious supply disruptions. [ID:nSIN255334]

As the hurricane's winds slowed, it also stayed on a westerly track, missing New Orleans in a twist that helped keep it from becoming the monster storm feared just days earlier.

But the storm surge kicked up by Gustav tested a levee system still being rebuilt after collapsing during Katrina. A tense vigil followed into Monday night for any sign of the kind of deluge of three years ago when 80 percent of New Orleans flooded and thousands were stranded.

The U.S. Army Corps of Engineers closed massive new floodgates built after Katrina and intended to keep Lake Pontchartrain waters from surging back toward the south into the city and over the banks of two canals.

Although water flowed over flood walls and spurted through cracks, a flood barrier system which officials had warned left New Orleans vulnerable appeared to hold up.

New Orleans Mayor Ray Nagin said residents could begin to return to the city later this week. With the city still under curfew, officials will assess hurricane damage on Tuesday and begin allowing businesses to return as soon as Wednesday.

"Reentry is only days away and not weeks away," Nagin said.

DODGED A BULLET

Some residents emerged from boarded up homes relieved to find only broken tree branches and toppled signs.

"We'll still get some nasty weather but we've dodged a big-time bullet with this one," said stockbroker Peter Labouisse, sitting on the porch of his home, which was shuttered and without power.

Louisiana officials reported six storm-related deaths, including an elderly couple in Baton Rouge who were killed when a tree fell on their home.

In contrast to the widespread lawlessness that followed Katrina, New Orleans police said they had only arrested two people for looting during the storm.

Oil companies had shut down nearly all production in the region, which normally pumps a quarter of U.S. oil output and 15 percent of its natural gas.

Exxon (XOM.N) said it was shutting down its Baton Rouge refinery, the second largest in the United States. Louisiana Gov. Bobby Jindal said Exxon would ask for crude oil from the U.S. emergency Strategic Petroleum Reserve and Shell Oil Co (RDSa.L) was expected to make a similar request, as refiners look to ensure gasoline supplies in the wake of Gustav.

Mindful of the ravages of Katrina, which killed some 1,500 people, nearly 2 million people had fled the Gulf Coast as Gustav approached.

Homeland Security Secretary Michael Chertoff warned residents it was too early to sound the all-clear.

"This is not over. It's still hitting parts of the state very hard," he said.

Underscoring continued concern about the fragile flood barriers, officials in rural Plaquemines Parish told the handful of residents remaining to flee as a levee protecting 200 homes had been weakened by water surging over the top.

Plaquemines, a fishing hub that sprawls into the Gulf of Mexico, was hammered by a 20-foot (6 meter) storm surge during Katrina.

BUSH RESPONSE

Gustav stole the limelight from the Republican Convention to nominate presidential candidate John McCain. It opened on Monday with a bare-bones program.

President George W. Bush, who was heavily criticized for the slow Katrina relief efforts, canceled his appearance at the convention and went to Texas to oversee relief effort.

A dangerous Category 4 hurricane a few days ago, Gustav hit shore near Cocodrie, Louisiana, about 70 miles (115 km) southwest of New Orleans, as a Category 2 storm, one step below Katrina's strength at landfall.

Initial loss estimates from Gustav were far below those for Katrina, which caused total loses of more than $80 billion, making it the costliest hurricane in U.S. history.

EQECAT Inc., which helps insurers model catastrophe risk, said it estimated Gustav's insured losses at $6 billion to $10 billion. AIR Worldwide Corp., another firm that provides models for the financial risk from disasters, estimated that Gustav had caused up to $4.5 billion in losses on land and up to another $4.4 billion to offshore oil and gas installations.

Before landfall in Louisiana, Gustav killed at least 97 people in the Dominican Republic, Haiti, Jamaica and Florida.

Gustav, now a tropical storm spinning toward Texas, will continue to lose power over the next day, even as it dumps heavy rain parts of six states, the U.S. National Hurricane Center said.

As U.S. fears over Gustav eased, Tropical Storm Hanna grew to hurricane strength near the southeast Bahamas, threatening the U.S. east coast from Florida to the Carolinas, and Tropical Storm Ike formed in the Atlantic Ocean. (Additional reporting by Tom Brown in Miami, Lilla Zuill in New York, David Alexander in Washington, and Bruce Nichols, Chris Baltimore and Erwin Seba in Houston; Writing by Jim Loney and Kevin Krolicki; Editing by Mary Milliken and Sandra Maler)