(Updates with more details)

By Patrick Markey

BOGOTA, Jan 27 (Reuters) - Two people were killed when a bomb exploded in an exclusive neighborhood in Colombia's capital on Tuesday in what authorities said was a possible extortion racket by guerrillas.

Police and emergency workers cordoned off the area after the strong blast damaged a Blockbuster <BBI.N> video store, shook the northern part of Bogota and sent late-night diners and residents scurrying out into nearby streets.

"Unfortunately, two people were killed," Interior Minister Fabio Valencio told reporters. "This is an indiscriminate attack."

Bombings have been rare in the capital since President Alvaro Uribe began a U.S.-backed crackdown on leftist rebels fighting a four-decade war against the state.

Authorities initially reported 20 people were wounded, but later said no one was injured in the blast, which was caused by about 5 kilograms (11 pounds) of explosive placed in an ATM machine in the two-story building where Blockbuster operates.

"Everyone in one restaurant ran out without thinking of their safety to try and help, but there was not much they could do," said Clara Lopez, a city official and local resident.

Police were still investigating who was responsible for the explosion, but Defense Minister Juan Manuel Santos said the attack was consistent with previous FARC rebel attacks to pressure local businesses.

In the past, police have attributed small bombings against commercial establishments to FARC extortion and a Blockbuster store was targeted with a small blast last year, officials said.

Colombia's FARC rebels were once a peasant army that controlled large parts of the country, but they have been driven back into remote jungles and mountains since Uribe sent troops to retake control.

The rebels suffered a series of setbacks last year, including the deaths of three commanders, a string of desertions and the rescue of a group of hostages. But the FARC remains a capable force in some areas.

(Additional reporting by Luis Jaime Acosta and Helen Popper; editing by Eric Beech)

AlertNet news is provided by