(Updates with storm becoming hurricane, location)

By Matthew Bigg

ATLANTA, Sept 1 (Reuters) - Tropical Storm Felix became the second hurricane of the Atlantic season on Saturday night and is expected to gain strength as it moves through the Caribbean, the U.S. National Hurricane Center said on Saturday.

Felix had maximum sustained winds of 75 mph (120 kph) with higher gusts, making it a Category 1 hurricane on the Saffir-Simpson scale, and was moving west after skirting the island of Grenada.

"Additional strengthening is expected within the next 24 hours," the hurricane center said.

The first hurricane of the season, Dean, turned into a monster Category 5 storm and killed at least 27 people as it roared across the Caribbean and Mexico late last month.

On its present course Hurricane Felix is expected to pass near or to the north of the islands of Aruba, Bonaire and Curacao Saturday night or early Sunday morning.

"We are forecasting it to be a Category 3 hurricane in the northwestern Caribbean Sea by the middle of the week," said forecaster Eric Blake of the hurricane center in Miami.

At 8 p.m./(midnight GMT), the Felix's center was 155 miles (250 km) east-northeast of Bonaire and about 270 miles (435 km) east of Aruba, the hurricane center said.

Aruba, Bonaire and Curacao were under tropical storm warnings, alerting residents to expect storm conditions within 24 hours. The islands could expect up to 4 inches of rain.

Jamaica issued a tropical storm watch, but Venezuela discontinued a tropical storm warning for parts of its northern coast.

There were no indications that Felix would would reach the Gulf of Mexico, home to a third of U.S. domestic crude oil and 15 percent of natural gas production. But long-range forecasts are unreliable, the center said.

Energy markets have watched tropical storms and hurricanes closely since the devastating Atlantic hurricane seasons of 2004 and 2005, when storms like Ivan, Katrina and Rita disrupted supplies.

Computer models predicted the sixth named storm of the year in the Atlantic basin would head into the Caribbean in the general direction of Mexico and Central America.

The 2007 hurricane season, expected to be a busy one, is approaching its peak. Most storms hit from Aug. 20 to mid-October, with Sept. 10 marking the top.

In late August, Dean hammered Martinique, St. Lucia and other islands in the Lesser Antilles chain. It blasted Jamaica and then struck Mexico's Yucatan Peninsula before dissipating over the Mexican mainland.

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