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BROWNSVILLE, Texas (CBS News) ― Forecasters say Dolly has weakened to a tropical storm.

At 11 p.m. EDT Wednesday, the center of the storm was about 55 miles northwest of Brownsville, Texas. The storm is moving west near 7 miles per hour.

Forecasters at the National Hurricane Center expect it turn back to the west-northwest Thursday, with a slight increase in forward speed until it dissipates Friday.

The maximum sustained winds are near 70 mph. Dolly is expected to continue weakening as it moves farther inland. It may become a tropical depression by late Thursday.

Earlier Wednesday, Hurricane Dolly barreled into South Texas, lashing the coast with winds up to 100 mph and dumping heavy rain that threatened to flood low-lying areas but spared levees along the heavily populated Rio Grande Valley.

Authorities had feared the first hurricane to hit the U.S. since last September could produce up to 20 inches of rain in some areas, possibly breaching levees in the heavily populated Rio Grande Valley. But shortly before coming ashore, the Category 2 storm meandered 35 miles north of the border, veering away from the flood walls.

"The levees are holding up just fine," said Johnny Cavazos, emergency coordinator for Cameron County. "There is no indication right now that they are going to crest."

Although the system weakened after striking land on the resort area of South Padre Island, one official cautioned that the danger had not passed.

"It's still very early in the storm," said Sally Spener, a spokeswoman with the International Boundary and Water Commission.

Small communities just north of Brownsville were taking the brunt of the storm, including low-lying colonias, small villages of immigrants who live without sewer and water service.

Most of the destruction was on the island, where the hurricane knocked out power to thousands of homes, ripped off roofs and smashed windows.

Roads and yards were strewn with toppled trees, fences, power poles and streetlights. Business signs rolled around the streets like tumbleweeds. The causeway linking the island to the mainland was closed.

In Mexico, soldiers made a last-minute attempt to rescue people at the mouth of the Rio Grande, using an inflatable raft to retrieve at least one family trapped in their home. Many people further inland refused to go to government shelters.

"These are people who did not want to leave, and now they are in trouble," said Leticia Montalvo, a spokeswoman for the town of Matamoros, just across the river from Brownsville.

The roof of an apartment complex on South Padre Island partially collapsed, but residents said they didn't believe anybody was injured.

"I thought it was just a big clap of thunder, (then) saw this stuff flying around and it's the roof," said Buck Dopp, who lives in a ground-floor apartment.

South Padre Emergency Manager Dan Quandt told CBS New Early Show meteorologist Dave Price that Dolly's initial fierceness was surprising.

"It's amazing how much a few degrees and a few miles per hour make. This has been much stronger than we thought going in," Quandt said.

A 17-year-old boy fell from a seventh-story balcony, injuring his head, breaking his hip and fracturing his leg. The boy was being treated at an island fire station.

At 8 p.m. EDT Wednesday, the storm's center was about 60 miles northwest of Brownsville and moving west-northwest at about 10 mph. The storm's maximum sustained winds had weakened to about 75 mph. Forecasters expected to downgrade it to a tropical storm later Wednesday night.

Dolly spawned thunderstorms as far away as Houston, 400 miles up the coast. Tornado watches were in effect for many coastal counties between Corpus Christi and Houston.

CBS affiliate KGBT reports that Gov. Rick Perry put the state's military force on alert - making 1,200 men and women with the Army National Guard and Air and Texas National Guards ready for deployment orders in response to Dolly.

"Currently we have soldiers based in Austin, San Antonio, Houston," Col. Bill Meehan of the Texas Army National Guard Center in Austin told KBGT. "And we have two air units that are prepared to launch; one out of Austin, one out of San Antonio."

In Mexico, a 102-year-old woman and seven family members fled their wooden shack in the fishing community of Higuerilla and spent the night at a shelter in Matamoros.

"I don't know if my poor house will withstand the rain and wind," Maria Miguel said.

Many of those who headed north to escape the storm were stopped at inland Border Patrol checkpoints, where agents opened extra lanes so they could check documentation. At one checkpoint on U.S. Route 77, smugglers were caught with 5,000 to 8,000 pounds of marijuana.

Power was knocked out to more than 56,200 customers in three border counties. South Padre Island also lost power.

Thousands of people fled to shelters in towns on both sides of the border while police and National Guard troops patrolled neighborhoods.

In Brownsville, the wind bent over palm trees and tossed debris across the all-but empty streets. The windows and doors of shops were boarded up with plywood, and most businesses were closed.

The U.S. Census Bureau said that based on Dolly's projected path, about 1.5 million Texans could feel the storm's effects. Gov. Rick Perry declared 14 south Texas counties disaster areas and sought federal disaster declarations.

As Dolly approached, oil and gas companies in the Gulf of Mexico evacuated workers from 62 production platforms and eight rigs, according to the U.S. Minerals Management Service, which monitors offshore activity.

Shell Oil, which didn't expect production to be affected by the evacuations, also secured wells and shut down operations in the Rio Grande Valley, where it primarily deals in natural gas.

The last hurricane to hit the U.S. was the fast-forming Humberto, which came ashore in South Texas last September. Dolly is the 26th hurricane to make landfall in the U.S. in July since record keeping started in 1851, according to federal researchers.

The busiest part of the Atlantic hurricane season is usually in August and September. So far this year, there have been four named storms, two of which became hurricanes. Federal forecasters predict a total of 12 to 16 named storms and six to nine hurricanes this season.

(© 2009 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)