New Orleans deluged as hurricane slams into city at 145 miles an hour

The low-lying and vulnerable American city of New Orleans was lashed yesterday by Hurricane Katrina, whose 145mph winds and driving rain caused billions of dollars worth of damage and sent oil prices soaring.

While the complex system of flood defences protecting New Orleans was not breached, five deaths in the region were blamed on the storm, and many communities were flooded, leaving hundreds of thousands of people stranded and without power. Three people were killed by falling trees in Mississippi and two were killed in a traffic accident in Alabama. More people were feared dead in flooded districts, many of which could not be reached by rescuers because of high water.

The storm was estimated to have caused up to $25bn (£14bn) worth of damage, making it the most costly in US history. At one point the cost of crude oil rose to more than $70 a barrel as the oil industry in the Gulf became paralysed. At least eight refineries shut down and two rigs were adrift.

The hurricane had prompted the unprecedented mandatory evacuation of one million people from the New Orleans area. The city's Mayor, Ray Nagin, said: "This is a threat that we've never faced before."

In the city, people unable or unwilling to obey the order huddled in hotels and emergency shelters to wait out the worst of the hurricane. About 10,000 took refuge in the Superdome sports stadium, where 20ft holes were torn in the roof as the storm reached its peak.

In the Mississippi town of Gulfport, east of New Orleans, the wind hurled boats into buildings, while in St Bernard Parish, also east of the city, 40,000 homes were reportedly flooded.

The full extent of the damage was unclear last night, but it seemed that the worst predictions, concerning New Orleans at least, had not materialised. Shortly before it struck land at 6.10am (12.10pm British time) the storm weakened from a category 5 hurricane to a category 4 and shifted its path slightly eastwards. That meant it came ashore at the bayou town of Buras and spared New Orleans the worst of its might.

Most importantly the city's complex system of canals, pumps and levees appeared to have held firm.

"We have a tough, tough people. We party hard, we work hard. We know we can get through this," said Louisiana's Governor, Kathleen Blanco.

President George Bush declared the affected communities major disaster areas, enabling them to receive federal emergency funds. "I know my fellow citizens are saying our prayers for those affected by Hurricane Katrina," he said. "I want the folks to know that the federal government is prepared to help when the storm passes."

For years experts had feared a storm big enough to breach the levees and pumps used to keep New Orleans dry. They said that if the defences were breached it would turn the city into a toxic lake filled with chemicals and petroleum from refineries, as well as waste from ruined septic systems.

The National Weather Service reported that a levee broke on the Industrial Canal near the St Bernard-Orleans parish line, and that three to eight feet of flooding was possible. The canal is a five-mile waterway that connects the Mississippi river to the intracoastal waterway.

In the city's French Quarter, water pooled in the streets, and in historic Jackson Square two oak trees outside the St Louis Cathedral were ripped out. Elsewhere the storm shattered scores of windows in office buildings and on five floors of the Charity Hospital. Patients were moved to lower levels.

In numerous hotels, windows were blown in and guests left their rooms to stay in the hallways until the storm passed. A member of staff of the Ritz Carlton Hotel in the French Quarter told The Independent by telephone: " All of the guest rooms have been evacuated; all the guests are now in a central area in the middle of the hotel. They've just had their breakfast and everyone's pretty calm."

He added: "The only thing that's scaring them a little is the noise of the wind outside. Everything's locked down and sandbagged. The power ran out about two hours ago; we've been on a generator ever since."

In suburban Jefferson Parish, Sheriff Harry Lee said residents of a building on the west bank of the Mississippi had called emergency services to say the building had collapsed and that people might be trapped.

New Orleans' vulnerability is a result of its geography: low elevation and its location surrounded by water. The city, founded by the French in 1718, is bordered to the south by the Mississippi river, to the north by Lake Pontchartrain and to the east by the Gulf of Mexico. Even when there are no storms the Mississippi pours into the Gulf at a rate of nearly five million gallons a second.

When the French founded the city, it appeared that the site was reasonably elevated. But the settlement they established was on soil only recently deposited by the Mississippi, and for the past 300 years that soil has been slowly settling, causing the level of the city to drop. Drainage projects to enable further development have exacerbated the downward shift to the point that the city today is sinking by at least a third of an inch a year.

Today, ships that pass along the Mississippi river float several feet above the revellers who tumble out of the bars on Bourbon Street and elsewhere in the French Quarter. In 2000, State Farm Insurance, one of the state's leading insurance providers, severely curtailed the writing of new policies in coastal Louisiana because of the growing storm danger.

It may not be clear for some time when the residents of the city will be able to return. Officials spoke yesterday of considerable damage, and video footage from the city centre showed streets under water and littered with debris.

Despite this, many residents believe they got off lightly. Harald Johnson, 43, taking shelter in the Superdome, said: "I could have stayed at home and watched my roof blow off. Instead, I came down here and watched the Superdome roof blow off. It's no big deal; getting wet is not like dying."

The hurricane's winds had dropped to about 105mph and it had been downgraded to a category 2 storm last night as it made its way inland, dropping up to 15 inches of rain in the Tennessee Valley before moving towards the drought-stricken Ohio Valley and the eastern Great Lakes.

Experts predicted that the worst-hit areas would be in southern Mississippi, where a 15-mile stretch of coast includes the communities of Waveland, Bay St Louis and Pass Christian. The state governor, Haley Barbour, said his worst fear was that people who failed to leave may have been killed. " It came in on Mississippi like a ton of bricks. It's a terrible storm," he said.

Officials said the stretch of coastline was struck by a 22ft storm surge that washed sailing boats on to a coastal four-lane highway. Trees were blown across streets and on to houses and billboards were shredded. The Beau Rivage Hotel and Casino, one of the premier gambling spots in Biloxi, had water on its first floor. "This is a devastating hit; we've got boats that have gone into buildings," the city's fire chief, Pat Sullivan, told the Associated Press.

Meteorologists said global warming might be responsible for an upsurge in the intensity of storms. Professor Kerry Emanuel, of the Massachusetts Institute of Technology, said tropical storms had doubled in destructive potential in the past 30 years because ocean surfaces had become warmer. But he said yesterday's storm appeared to have been part of a natural cycle of powerful Atlantic storms that have struck since the mid-1990s.