Schools, offices, airports and bridges had closed across the Bahamas as residents stocked up on supplies.
Forecasters warn the storm could pose a major threat to the US East Coast.
Early on Friday, Sandy had dropped to a category one hurricane with maximum sustained winds of 90 mph (150 kph), said the US National Hurricane Center.
It was moving north at about 13 mph centred between Cat Island and Eleuthera in the central Bahamas about 185 miles south-east of Freeport on Grand Bahama Island.
Florida was already being lashed by heavy rain and high winds, with the coastal state being put under a tropical storm warning.
"We're looking for tropical-storm force winds along the coast and then some very dangerous surf conditions over the next couple of days," said James Franklin, the NHC's chief hurricane forecaster.
"So we can't really emphasise enough to keep people out of the water, the winds are going to be very strong."
Some US broadcasters were already referring to Sandy as The Halloween Hurricane - or even Frankenstorm, due to the possibility of it blending with a winter storm over the United States - as it was expected to bring coastal flooding and power outages around All Hallow's Eve - on 31 October.
The storm was expected to head north-west at a slower pace on Friday, getting gradually larger all the while.
Although it is forecast to weaken, the NHC said it would likely remain a hurricane during the next 48 hours.
Guantanamo battered
Earlier on Thursday Sandy had caused a storm surge leading to severe flooding along Cuba's south-eastern coastline.
Civil emergency authorities revealed 11 people died as the storm lashed the communist island - nine of those in Santiago de Cuba, the island's second-largest city.
TV footage of the popular tourist destination showed fallen trees, toppled houses and debris-choked streets.
More than 50,000 people had been moved from their homes in the city as a precaution.
Strong winds and rain also battered the US naval base and detention facility at Cuba's Guantanamo Bay, confining some workers to their quarters, delaying a hearing and prompting a number of prisoners to be moved to safer accommodation.
Elsewhere, nine deaths were reported in Haiti - where much of the infrastructure remains in a very poor condition following a massive earthquake in 2010.
In Jamaica earlier, more than 1,000 people sought refuge in shelters as Sandy caused widespread power outages, flooded streets and damaged buildings.
One elderly Jamaican was killed when a boulder fell on his house.
A 48-hour curfew was imposed in the island's major towns to deter the looting that had accompanied previous storms.
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