HARRISBURG, Pa, Dec 16 (Reuters) - A key witness in the sex abuse case of former Penn State assistant football coach Jerry Sandusky testified on Friday that he had no doubt he saw Sandusky in a sexual act with a 10-year-old boy in 2002.

"I believe he was sexually molesting the boy," Mike McQueary, a graduate assistant in the university's football program in 2002, told a court hearing, adding at a later point that he "has no doubt" he saw Sandusky in a sexual act.

But McQueary also said: "I did not see insertion nor was there any protest, screaming or yelling."

"I heard rhythmic slapping sounds, two or three slaps that sounded like skin on skin."

He said he was "shocked, horrified, not thinking straight. I was distraught."

The case has shattered the national image of Penn State as a big-time college football program that also stressed high academic and moral standards, and has shocked many Americans because the alleged sexual abuse may have gone on for so long without being stopped.

McQueary testified for two hours at a hearing concerning charges against former Penn State athletic director Tim Curley and finance official Gary Schultz. McQueary took questions from Pennsylvania Deputy Attorney General Bruce Beemer as well as lawyers for Curley and Schultz.

About 100 reporters and 50 to 60 members of the public jammed the courtoom, with some journalists having to monitor the hearing from a different part of the building.

Curley and Schultz, the latter in charge of the university's police at the time of the incident, were charged last month with perjury before a grand jury for testimony they gave about their knowledge of the alleged abuse.

McQueary, who was 28 at the time, said that after the incident he called his father and told him: "I just saw coach Sandusky. What I saw was wrong and sexual."

McQueary also talked to legendary Penn State coach Joe Paterno about the incident.

Asked if he used the phrase "anal intercourse" in describing what he saw to Paterno, McQueary said, "No, out of respect, I would not have done it."

Paterno told him, "I'm sorry you had to see that" and that he had "done the absolute right thing," McQueary said.

Paterno appeared "shocked and saddened" after hearing what McQueary saw, and "slumped back in his chair," said McQueary, who was dressed in a dark suit and wore a white shirt and blue tie.

DID NOT CONFRONT SANDUSKY

McQueary said he had never confronted Sandusky himself about the alleged incident, and that while he had "absolutely without a doubt" considered calling police, he did not.

However, McQueary told the hearing he did talk to Schultz about it and in doing so, "I thought I was talking to the head of police."

He said he thought Schultz "would know what to do" with the information.

Asked by Schultz's attorney, Tom Farrell, if Sandusky had an erection, McQueary said: "I don't know. I didn't look and stare down there." Asked if he saw pain on the boy's face, McQueary said "no."

The hearing was in a courtroom at the Dauphin County Courthouse with District Judge William Wenner presiding.

McQueary had testified to a grand jury that he witnessed Sandusky sodomizing a boy in the football building showers, and reported it to then head coach Paterno.

Paterno said he told his boss, Curley, but no one told police, and Sandusky's alleged behavior continued, according to a grand jury report.

The preliminary hearing on Friday is to determine if there is enough evidence for Curley and Schultz, both of whom were present, to go to trial.

McQueary, now an assistant coach himself, has not been charged in the case but was put on administrative leave from the university, as was Curley. Schultz retired shortly after he was arraigned Nov. 7 in suburban Harrisburg.

Paterno and Penn State President Graham Spanier were fired for not telling police what they knew.

Sandusky waived his preliminary hearing on Tuesday and will go straight to trial on 52 counts of alleged sex abuse of boys over a 15 year period.

McQueary's father, John McQueary, also testified on Friday that he had a meeting with Schultz and was told there had been a "noise level" about other incidents involving Sandusky, but the university "was never able to unearth anything or sink our teeth into anything substantial."

Referring to his son's description of the sounds of the incident, the elder McQueary said that while neither he nor his son used the word thrusting, "you don't have to be a rocket scientist to figure out a sound like that would be thrusting."

In other testimony, Thomas Harmon, a retired Penn State director of police, told the court about an alleged 1998 incident involving a boy that had been reported to police by the boy's mother.

Harmon said the mother reported Sandusky hugged her son from behind "but did not report any touching of genitals or anything overtly sexual."

Penn State faces a raft of investigations into the Sandusky case and how the school handled it. The university said on Thursday it had asked for more time to respond to questions from the National Collegiate Athletic Association (NCAA).

The university has told the NCAA that it is clear that the questions "might be answered in the course of the investigations currently in progress," it said in a statement.

The case is Commonwealth of Pennsylvannia v Gerald Arthur Sandusky, Court of Common Pleas of Pennsylvania, no.CR-393-2011.

(Reporting by Mark Shade; additional reporting by Ian Simpson)

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