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By Keith Coffman

FREDERICK, Colo. (Reuters) - Mourners gathered on Friday in a small Colorado town where the remains of a pregnant woman and her two young daughters were reportedly discovered in oil storage tanks the day after police took the father into custody for their murders.

Shanann Watts, 34, and her daughters Bella, 4, and Celeste, 3, were reported missing from their home in Frederick, 25 miles north of Denver, by a family friend on Monday afternoon, touching off an exhaustive search by law enforcement agencies.

Chris Watts was taken into custody on Wednesday on suspicion of murder, a day before the bodies of his wife and children were found. Watts, 33, had pleaded for the safe return of his pregnant wife and two young daughters while the search was underway.

About 200 people gathered in front of the family's two-story home, where they created a makeshift memorial with flowers, stuffed animals and toys. They sang "Amazing Grace" and prayed during a candlelit vigil as the sun set.

"I call it a highway to heaven," said neighbour Mary Ann Bogner, 64, fighting back tears as she arranged candles in the form of a cross.

Authorities have declined to confirm media reports that Watts had confessed to killing his family. The warrant for his arrest was sealed by a judge.

The two young girls were strangled and their bodies were found inside an oil tank, the Denver Post reported, citing a motion filed in court by an attorney for Watts. The remains of all three victims were found at Anadarko Petroleum oil field where Watts worked until his arrest, the newspaper reported.

Watts is being held at the Weld County jail on three counts of first-degree murder and three counts of tampering with physical evidence, jail records show.

Prosecutors will formally charge him on Monday, District Attorney Michael Rourke said.

The killings have shaken the commuter community of Frederick, a former mining town of 13,000 people.

"This is what small towns do. We support each other and unite whether it is in tragedy or joy," said Rusty O'Neal, 42, town trustee, during the vigil.

(Reporting by Keith Coffman in Frederick, Colorado; additional reporting by Brendan O'Brien in Milwaukee; Writing by Dan Whitcomb; Editing by Simon Cameron-Moore)

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Reuters