By Yimou Lee, Fabian Hamacher and Ann Wang

KAOHSIUNG, Taiwan, Oct 3 (Reuters) - Taiwan on Thursday

girded itself for the arrival of a weakening Typhoon Krathon

which has killed two people so far, as the island shut down for

a second day with hundreds of flights grounded and financial

markets closed.

Krathon is forecast to make landfall around midday at the

major southwestern port city of Kaohsiung, as a much weaker

category 2 typhoon, though the government is warning of

torrential rain and storm surges along the coast.

Shortly after dawn, residents in Kaohsiung, a city of some

2.7 million people, received text message warnings telling them

to seek shelter from gusts more than 160 kph (44 mph).

The fire department reported two deaths as the approaching

typhoon brought torrential rains across the island, both on the

mountainous and sparsely populated east coast - a man who fell

while trimming a tree and another man whose vehicle was hit by a

falling rock.

The typhoon is forecast to slowly work its way up Taiwan's

flat western plain and weaken further into a tropical depression

by late Friday.

All domestic flights were cancelled for a second day, as

well as hundreds of international ones.

Taiwan's financial markets closed for a second day too.

Typhoons often hit Taiwan's east coast facing the Pacific,

but Krathon is unusual in that it will directly hit the west

coast.

The Kaohsiung government has been particularly cautious in

its preparations given the last time it was stuck by such a

storm, 1977's Typhoon Thelma, 37 people died and the city

devastated.