* Saturday's blasts killed suspected bomber, injured two
* Threat letter emailed to Swedish news agency
* Europe on alert for possible militant attacks
(Adds Lars Vilks quotes)
By Mia Shanley and Niklas Pollard
STOCKHOLM, Dec 12 (Reuters) - Police said on Sunday they were treating bomb blasts in Stockholm as an act of terrorism by a lone attacker that followed an emailed threat referring to Sweden's troops in Afghanistan and to cartoons of Mohammad.
Police stopped short of calling Saturday afternoon's blasts, which killed the suspected bomber and wounded two people, a suicide attack. A car blew up in a busy shopping area, followed minutes later by a second explosion nearby.
Shortly before the blasts, Swedish news agency TT received a threatening letter referring to Sweden's presence in Afghanistan and caricatures of the Prophet Mohammad drawn by a Swedish cartoonist. The letter included digital sound files with a recording in broken Swedish and in Arabic.
The incident follows several nervous months in Europe after a U.S. travel alert about possible attacks by militants and a failed bid by a Yemen-based al Qaeda group to use air cargo to send parcel bombs via Europe to America.
German authorities last month said they were on guard against threats of armed attack on civilians of the kind that killed 166 in the Indian city of Mumbai in 2008, but Germany said on Sunday it saw no link with the Swedish attack.
TT said the letter promised attacks over Sweden's presence in Afghanistan, where it has 500 troops with the U.S.-led NATO force, and the cartoons drawn three years ago by Lars Vilks.
"This is a very serious incident, which is being investigated as an act of terrorism," Anders Thornberg, director of operations at the Security Police, said in a statement.
"As far as we know, it looks like he was working for himself, but we have to be really sure so we are investigating whether there could be more perpetrators," he told Reuters.
The police declined to go into further details about the dead man's motives or identity.
Swedish broadcaster SVT, citing unidentified sources, said the dead man was thought to be a 29-year-old from the small town of Tranas, about 200 km (124 miles) southwest of Stockholm.
Police would not comment on a report in daily Aftonbladet on Saturday which quoted a source as saying the man was carrying six pipebombs, of which one exploded, and a rucksack full of nails and suspected explosive material.
Vilks, the target of several attacks, told Reuters Television he was safe and was getting used to being a target.
"Sweden is panicking of course because this has never been the case before that you have an act of terrorism directed towards the public, and this will of course create fear in Sweden," he said in an interview.
WORRIED EUROPE
Sweden did not raise its security threat level -- currently at "elevated", two notches below the top level -- but police stepped up their presence in Stockholm.
Britain, which has suffered similar attacks, said it was in touch with Sweden.
"Other European capitals must be worried about the fact that this happened in a capital city in the run-up to Christmas," said Claude Moniquet, head of the European Strategic Intelligence and Security Center think-tank in Brussels.
"It could be a signal to other potential attackers to prompt them to attack at this time."
Evan Kohlmann, a U.S. terrorism consultant, said he suspected the attack was by "a home-grown local extremist who may or may not have connections to any actual terrorist organisation".
Prime Minister Fredrik Reinfeldt urged Swedes to remain calm and not let their belief in tolerance and openness be shaken.
"We cherish this society. This society is worth defending," he said.
Police arrested a man who was spotted getting out of a car brandishing an axe near the prime minister's office just before Reinfeldt spoke.
The Islamic Association in Sweden condemned the blasts. "The attack is a shock to us all, and strikes at our joint peace and security," Chairman Omar Mustafa said in statement.
RETURN TO CALM
There was little evidence that Stockholmers were deterred from their holiday shopping.
"Of course these things can happen in Sweden ... but it feels surreal. It's too close," said Cecilia Hermansson, a young woman visiting the capital.
The incident began when a car burst into flames near a busy shopping street in the city centre, followed by explosions inside the car which police said were caused by gas canisters.
The second explosion, about 300 metres (yards) away and 10-15 minutes later, killed one man and wounded two people.
Newspaper Dagens Nyheter quoted a medic as saying after the second blast that the dead man had been carrying something that exploded at his stomach. The paper quoted witnesses as saying the man was shouting in what sounded like Arabic.
TT said the email it received was also sent to the Security Police.
"Our actions will speak for themselves, as long as you do not end your war against Islam and humiliation of the prophet and your stupid support for the pig Vilks," TT quoted a man as saying in one recording.
Vilks depicted Mohammad with the body of a dog. Many Muslims consider any image of the founder of Islam offensive.
In March, an American calling herself "Jihad Jane" was charged with plotting to kill Vilks. In May, arsonists tried to set fire to his house. (Additional reporting by William Maclean, Ilze Filks and Niklas Pollard; writing by Adam Cox and Patrick Lannin; editing by Andrew Roche)
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