(Updates with downgrade)

By Jeff Franks

HAVANA, Nov 9 (Reuters) - Paloma lost its punch as it stalled over Cuba on Sunday and was downgraded to a tropical depression after coming ashore as powerful hurricane that battered the island still recovering from two earlier storms.

Paloma left a trail of destruction through eastern Cuba, but not the widespread devastation of hurricanes Gustav and Ike that caused $8 billion in damage when they struck in August and September.

In it latest advisory, the U.S. National Hurricane Center in Miami said Paloma's winds had dropped to 35 miles per hour (55 kph). Its center was located 15 miles (25 km) south-southwest of the eastern central city of Camaguey and moving just 1 mph (2 kph) to the north, the center said.

The storm hit the southern coast on Saturday with 120 mph winds (195 kph) that knocked over power and phone lines, toppled trees, damaged homes and felled a communications tower.

In Santa Cruz del Sur, where Paloma made landfall, a 13-foot (4-metre) storm surge pushed seawater nearly a mile (1.5 km) inland, damaging hundreds of homes. Rainfall of up to 15 inches (40 cm) was reported in some areas, causing local flooding.

Paloma weakened quickly as it crept inland and was downgraded throughout the day on Sunday before its downgrade to tropical depression.

Much earlier in the day, the Cuban weather service said only remnants of Paloma remained and stopped issuing advisories.

NO INJURIES OR DEATHS

Cuban officials declared the recovery phase begun and many of the hundreds of thousands of evacuees started returning home. No storm-related deaths or major injuries were reported.

"I'm happy that it was less that expected," university student Maritza Bacallao in Camaguey. "The scare was worse than the reality."

"It was less than Ike and I hope it's the last one," said school teacher Iris Mendoza, also in Camaguey. "It's the second time they made me spend the night without sleeping, watching to see if the roof fell in."

Gustav slammed the Isle of Youth and westernmost Pinar del Rio province with 150 mph (230 kph) winds, while Ike hit eastern Cuba with 120 mph winds (195 kph) and rampaged through much of the island.

They damaged almost 450,000 homes and destroyed 30 percent of Cuba's crops, which touched off food shortages in the cash-strapped communist-run island that normally imports 60 percent of its food.

The most recent reports said only 20 percent of the damaged homes had been fully repaired.

Before hitting Cuba, Paloma raked the Cayman Islands, causing wind damage and flooding in the wealthy British territory, but no deaths.

Paloma was the eighth hurricane of a busy Atlantic hurricane season, which officially ends Nov. 30.

It was was the second-most powerful hurricane ever recorded in the month of November and struck 76 years after a Nov. 9, 1932, cyclone that killed 3,000 in the same part of Cuba.

(Editing by Cynthia Osterman)

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