Taliban fighters claimed responsibility for the bombing.
"I got out and saw a lot of people wounded and killed laying on the ground," Mehmetullah Khan, a shopowner, said.
"I do not know what kind of Muslims they are. They are killing Afghans," he said of the Taliban.
A spokesman with Nato's International Security Assistance Force (Isaf) said three foreign soldiers were injured in the blast but declined to give their nationalities.
The separate US-led coalition said it was gathering reports, but a spokesman said "we don't deny" the wounded are coalition forces. A Canadian military spokesman rejected an interior ministry report that they were from Canada.
Kandahar has suffered many of the suicide bombings that have rocked Afghanistan in recent months. Nearly 140 people died in two blasts in two days in the city in February.
One of the bombings targeted a crowd watching a dog-fight, killing about 100 people in the deadliest attack since the Taliban launched an insurgency after a US-led invasion toppled their regime in 2001.