Local resident John McCann said there were thousands of people at Nobbys Beach watching the struggling vessel and the rescue operation.
He said the winds were exceptionally strong. At another Newcastle beach, piles of sand had blown off the beach, covering the road and a nearby park.
"It was like half the beach was across the road," Mr McCann said.
Earlier reports that the stranded vessel, the Pasha Bulker, had hit rocks were not correct, police said.
The Newcastle Coastal Patrol said the ship's fuel tanks were not believed to be damaged.
Strong swells and wild winds were blamed for causing the Pasha Bulker to break its moorings.
The 250-metre Pasha Bulker had been preparing to collect coal from Newcastle Port later this month.
NSW Maritime chief executive Chris Oxenbould said the bulk carrier ran aground just south of the entrance to the port of Newcastle.
The ship is understood to be carrying 700 tonnes of fuel oil, 38 tonnes of diesel and 40 tonnes of lube oil, he added.
"The priority is the saving of lives and the focus is on the crew," Mr Oxenbould said.
"A response is being coordinated and contingencies for pollution are being put in place."
Source: ninemsn
