Hurricane Dolly is slowly moving toward mainland South Texas after making landfall over South Padre Island at Category 2 strength with sustained 100 mph winds.

The AccuWeather.com Hurricane Center reports that at 2 p.m. CDT, the eye of Dolly was located over the Laguna Madre, the bay that separates the mainland from South Padre Island.

The storm had virtually come to a stop, but is now moving north-northwest at 7 mph.

With Dolly interacting with the land, it is now a Category 1 hurricane with maximum sustained winds around 95 mph with higher gusts. An unofficial gust of 119 mph was recorded this morning east of Matamoros, Mexico, while an 80 mph gust was reported in the town of South Padre Island.

Hurricane-force winds extend up to 25 miles from the storm's center, and tropical storm-force winds extend up to 140 miles.

The Severe Weather Center lists the hurricane warnings in effect along the Texas coast from Brownsville to Corpus Christi. Tropical storm warnings are in effect from north of Corpus Christi to San Luis Pass.

In Mexico, there are hurricane warnings in effect from the Rio Grande to Rio San Fernando and a tropical storm warning extends from Rio San Fernando to La Pesca. The effects of the storm are being felt along the Gulf Coast into Louisiana.

A tornado watch is in effect for South Texas. Earlier today, a tornado was reported near Rancho Viejo, Texas, and a waterspout was spotted over Lake Ponchartrain, La.

A storm surge as high as 8 feet above tide levels will swamp coastal areas, with flooding occurring on South Padre Island and near the mouth of the Rio Grande Valley, which is a delta plain.

Dolly is expected to dump up to 10 inches of rain, with locally higher amounts. The rain totals will be significantly higher if Dolly maintains its slow forward speed.

Ren Garcia walks his dog, Buddy, through downtown Brownsville, Texas, as Hurricane Dolly approaches the Rio Grande Valley, Wednesday, July 23, 2008. (AP Photo/Matt Slocum)

Rainfall totals in Texas over the 36-hour period ending today at 11 a.m. CDT include:

• Corpus Christi: 3.14 inches
• Port Isabel: 2.98 inches
• Brownsville: 2.45 inches
• Harlingen: 1.84 inches
• Palacios: 1.66 inches

Dolly is forecast to weaken to a tropical rainstorm by Thursday morning as it encounters the Sierra Madre mountains. However, heavy rain in the Sierra Madre could result in devastating flash flooding which could reach heavily populated Monterrey, Mexico.

With the eye of the storm forecast to track across northern Mexico, the Rio Grande Valley will be in the path of the strongest effects on the northern edge of the storm.There are approximately 1.2 million residents on the U.S. side of the valley. The major cities in the valley, including Brownsville, McAllen and Harlingen, will be hit hard by the rain and hurricane-strength winds.

According to Associated Press, the fear of local officials that the levees along the Rio Grande would fail and cause massive flooding eased when Dolly shifted north of the U.S.-Mexico border shortly before making landfall

Cameron County Emergency Management Coordinator Johnny Cavazos said the levees are doing their job. "There is no indication right now that they are going to crest."

Late Tuesday, the causeway linking the mainland to South Padre Island was closed and is not expected to reopen until later today. However, emergency management spokesman Dan Quandt said evacuations were not necessary. An apartment complex roof partially collapsed early today; however, there are no reports of injuries. Power is out on the island and in much of Cameron County on the mainland.

Texas Gov. Rick Perry ordered 1,200 National Guard troops and state emergency crews to standby status and sent 250 buses to a staging area in San Antonio. Perry also put fuel teams on standby to supply gas stations in an effort to avoid a repeat of the chaos in Houston following Hurricane Rita in 2005.

In Mexico, Tamaulipas Gov. Eugenio Hernandez said officials planned to evacuate 23,000 people to government shelters in Matamoros, Soto La Marina and San Fernando. Soldiers and sailors are assisting local police to protect against looting in Matamoros.

Dolly is having a minor impact on oil and natural gas operations in the Gulf. Shell Oil evacuated workers from oil rigs, secured wells and shut down natural gas production in the Rio Grande Valley. Petroleos Mexicanos, Mexico's state-run oil company, said 66 workers have been evacuated from an oil platform in the Gulf near the port city of Tampico.

The U.S. Minerals Management Service reports today that approximately 4.47 % of the oil production and approximately 7.87 % of the natural gas production in the Gulf had been shut-in.

The Fox Business Network reports that new of Dolly reaching Category 2 strength helped crude oil futures recover during afternoon trading. In recent trading, oil was down 75 cents to $127.67 a barrel.

Dolly could devastate crops in the Rio Grande Valley, which is the center of citrus production and the most important area of vegetable production in Texas.

Bill Summers, President and CEO of the Rio Grande Valley Partnership Chamber of Commerce, told AccuWeather.com that farmers are worried about crop damage in the wake of the heavy rain that fell in the valley last week. "Sometimes the good Lord blesses us with too much rain and sometimes not enough. This is one of those times when we've had too much rain."