Earl dropped to a Category 1 storm — down from a powerful Category 4 a day earlier — with sustained winds of 80 mph. The storm could weaken to a tropical storm by the time it passes about 50 to 75 miles southeast of Nantucket on Friday night, said National Hurricane Center Director Bill Read.

"The good news on Earl is it has been steadily weakening, maybe even a little quicker than forecast," Read said.

Nantucket police chief William Pittman warned island residents against complacency, saying Earl was "still a dangerous storm" with severe winds that could be stronger than those carried by the gusty nor'easters the island is used to absorbing.

The National Hurricane Center reduced the New England areas under a hurricane warning to just Cape Cod and the islands. The rest of the New England coast remained under tropical storm warnings and watches.

As of 2 p.m. EDT, Earl's center was located about 290 miles (465 kilometers) south-southwest of Nantucket, Mass., and moving north-northeast at nearly 21 mph (33 kph).

Most of the hurricane force winds were expected to remain offshore. The National Weather Service was forecasting winds up to 65 mph on Nantucket with gusts up to 85 mph. On Cape Cod, winds up to 45 mph with gusts of up to 60 mph were expected.

Earl sideswiped North Carolina's Outer Banks early Friday, flooding the vacation islands but causing no injuries and little damage. The storm's winds had dropped by then to 105 mph from 145 mph a day before.

Hurricane-force winds, which start at 74 mph, apparently did not reach the Outer Banks, said the National Hurricane Center's chief forecaster, James Franklin. Officials had urged some 35,000 visitors and residents on the Outer Banks to leave the dangerously exposed islands as the storm closed in, but hundreds chose to wait it out in their boarded-up homes.

Nancy Scarborough of Hatteras said she had about a foot of water underneath her home, which is on stilts. "Once it goes down, it shouldn't take long to get things back together," she said.

In New Jersey, authorities on Friday called off a search for the second victim of rough surf this week. Pardip Singh, of Carteret, entered the ocean Thursday night with a group of people in Belmar but did not emerge. His disappearance came on the same day that authorities recovered the body of a 23-year-old Asbury Park man who drowned after entering the roiling waters Tuesday.

In Massachusetts, Gov. Deval Patrick declared a state of emergency Thursday as he urged residents not to panic.

On Friday, many seemed to be following his advice. Traffic was light on both bridges to and from Cape Cod, where the air was still and heavy rains started in the late morning.

In downtown Chatham, a quaint fishing village at Cape Cod's eastern edge, tourists strolled the bookstores, cafes, candy shops and ice cream parlors on Main Street, largely unconcerned about the coming storm.

A handful of stores had put plywood over their windows, including the Ben Franklin Old Fashioned Variety Store. "C'mon Earl, we're ready for you," a handwritten note read.

In a parking lot near downtown, five large utility trucks sat waiting and linemen milled about, ready to fix any possible power outages. A handful of people walked on a beach nearby, the waves gently lapping the sand.

In Barnstable, Ellen McDonough, of Boston, and a friend were waiting Friday morning for one of the last ferries to Nantucket before service was stopped around noon. The two had planned a Labor Day weekend getaway to the island and didn't see Earl as a good reason to cancel.

"It's not a three-foot snow storm. I think us New Englanders are tough," McDonough said. "We've had this weekend planned, and no hurricane is going to stop us."

Scott Thomas, president of the Nantucket Island Chamber of Commerce, said island residents were taking the coming storm in stride.

"This is not something that is really unheard of for us, in terms of being prepped for it and being ready to handle something like this," he said. "We kind of roll with the punches out here; it's not a huge deal for us."

Thomas Kinton Jr., executive director of the Massachusetts Port Authority, which runs Logan International Airport in Boston, said he didn't expect major commercial airlines to cancel flights because of Earl. Cape Air, which serves Cape Cod, will be ending its flights at midday Friday, he said.

"The potential impacts to (Logan) airport are lessening as the hurricane gets closer," Kinton said.

In New York City, officials were on alert but said they expected to see only side effects of the storm — mostly rain and high winds, with possible soil erosion on the beaches and flooding along the oceanside coasts of Brooklyn and Queens.

In Rhode Island, Gov. Donald Carcieri signed a disaster declaration Thursday, giving emergency workers access to state and federal resources to deal with problems that may be caused by the hurricane. Block Island, a popular Rhode Island tourist destination, was expected to gusts as high as 60 mph.

At Acadia National Park in Maine officials closed most of a road where thousands of visitors gathered last year to watch the swells from Hurricane Bill, and a 20-foot wave swept a 7-year-old girl to her death.

Just off the coast of Maine and New Hampshire, some island residents decided to play it safe and return to the mainland.

Robert Bohlmann, emergency management agency director in York County, Maine, said some homes on the rocky Isles of Shoals belong to fishermen who have no intention of leaving.

"You couldn't get them off the island if you dragged them," Bohlmann said. "It's their homes and they're don't want to leave."

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Associated Press writers Mike Baker in Buxton, N.C.; Jeffrey Collins in Columbia, S.C.; David Sharp in Portland, Maine; Lyle Moran, Denise Lavoie and Jay Lindsay in Boston contributed to this report.