(Rewrites with details on BNSF, Union Pacific operations, background on Harvey)

By Eric M. Johnson

Aug 31 (Reuters) - Union Pacific Corp and BNSF Railway are making progress restoring limited rail service and repairing facilities in parts of southeastern Texas hit by Hurricane Harvey, the two leading U.S. railroads said on Thursday.

The closure of most rail lines in the energy and grain transport hub of Houston presents a costly headache for customers ranging from automakers to farmers who use the lines to send ethanol, cereals and auto parts to and from Mexico or to be loaded onto ships.

Rail companies are among the many businesses trying to get back to normal after Harvey, the most powerful hurricane to hit Texas in a half-century, drenched the Gulf Coast, killing dozens of people and displacing more than a million others.

Some freight was starting to move in the Houston area, No. 1 U.S. railroad Union Pacific said, but it is still holding back shipments destined for Brownsville and 36 rail stations in the Beaumont and Orange areas, including Port Arthur, all in Texas.

Workers completed repairs on some rail infrastructure to the north and south of Houston, but many routes in southern Texas are still being inspected, in some cases by helicopters and drones, the company said.

Union Pacific also expects switching operations to begin over the next two days in its primary rail yards in the Houston area, Englewood and Settegast.

Meanwhile, Berkshire Hathaway Inc's BNSF, the No. 2 U.S. railroad, said crews were making "significant progress" in restoring service on its line north out of Houston and a portion of its Galveston segment between Alvin, just south of Houston, and Temple, about 200 miles (320 km) to the northwest.

"We continue to re-route or divert as much traffic as possible around the area until flood waters recede and storm damaged lines can be repaired," the company said. "Routes are open into central Texas and traffic is moving through San Antonio, including trains destined for Mexico through our Eagle Pass gateway."

BNSF expects service to be restored on its Conroe segment of track north of Houston between Somerville and Dobbin by Thursday afternoon, while train loading and unloading operations have resumed at its Pearland automotive and intermodal freight facilities.

BNSF still has many yards closed due to flooding, including facilities in Silsbee, Galveston and Beaumont, but has re-opened limited operations at its South, Dayton, and Casey yards, the company said. (Reporting by Eric M. Johnson in Seattle; Editing by Jonathan Oatis and Bill Rigby)