NEW ORLEANS, Sept 2 (Reuters) - Half of New Orleans was without power on Tuesday, its sewage system was damaged and authorities said it was too soon for evacuees to go home, but the low-lying city breathed a sigh of relief after escaping a direct hit from Hurricane Gustav.

Gustav pounded the U.S. Gulf coast on Monday and many had feared a repeat of the destruction caused by Hurricane Katrina three years ago, but New Orleans’ levees appeared to hold firm this time.

Gustav weakened before hitting the coast to the west of New Orleans as a Category 2 hurricane, and the city was saved a devastating blow. The storm also did no major damage to key oil installations in the Gulf of Mexico, so oil prices plunged to five-month lows on Tuesday. [ID:nSP195227]

After ordering the city be emptied as part of a statewide exodus of 1.9 million people - one of the largest and most orderly evacuations in U.S. history - New Orleans Mayor Ray Nagin said residents could return later this week.

“We‘re going to do a full assessment today and really begin in earnest with repairs,” Nagin told the CNN network on Tuesday. “But my initial assessment is there is still some damage out in the city.”
He said much of the city was still without power and that hospitals were staffed by skeleton crews.
By early Tuesday, Gustav had weakened to become a tropical depression as it dumped rain over western Louisiana.

Although it landed west of New Orleans, Gustav was a crucial test for a levee system still being rebuilt after it collapsed during Katrina in 2005, when 80 percent of the city was flooded and about 1,500 people killed.

The levees appeared to hold firm this time and water levels in the most vulnerable canals were receding on Tuesday.

In a virtual ghost town of just 10,000 people who defied evacuation orders, residents emerged from boarded up homes relieved to find only broken tree branches and toppled signs.

“I’m not cleaning up the street by any means, but I am in front of my home because it makes me feel better psychologically,” retiree Raymond Bankston said as he raked leaves outside his home.

Louisiana officials reported six storm-related deaths, including an elderly couple in Baton Rouge who were killed when a tree fell on their home. Gustav had last week killed almost 100 people in the Dominican Republic, Haiti and Jamaica.

NO CRIME WAVE
In contrast to the rampant 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.
But after early reports showed little damage to the fragile network of refineries, pipelines and processing facilities along the Gulf of Mexico coast, oil prices slid nearly $9 to a five-month low below $106 a barrel.

Gulf Coast refineries with about 25 percent of U.S. gasoline-making capacity shut down as a precaution, and Louisiana Gov. Bobby Jindal said Exxon and Shell would likely ask for emergency oil loans from the federal government to ensure adequate gasoline supplies in the wake of Gustav.

Gustav had completely overshadowed the start of the Republican Convention to formally name John McCain as the party’s candidate in the Nov. 4 presidential election.

As the storm lost power on Tuesday, politics again took center stage.

But new storms approached the United States. Although Hurricane Hanna was downgraded to Tropical Storm over the Bahamas, it still threatened the east coast from Florida to the Carolinas, and potentially dangerous Tropical Storm Ike also moved west across the Atlantic toward the Caribbean.

Meanwhile, a new tropical depression formed in the far eastern Atlantic Ocean south of the Cape Verde Islands and was expected to become a tropical storm later on Tuesday. It will be named Josephine, and is the 10th tropical depression of this year’s busy Atlantic hurricane season.  

Additional Reporting