Authorities in the Russian capital said 49 people were hospitalized after the attack and six patients were in a critical condition. The bomb went off at 10:27 a.m. Moscow time (6:27 a.m. GMT) at the market in the northeast of the city, where many Asians work.
"The investigation has evidence showing that the bombing at the Cherkizovsky market was based on grounds of racial hatred," the source said.
Moscow Prosecutor Yury Syomin said earlier in the day that two suspects were being questioned and was confident that the case would be solved quickly.
"We have very strong evidence that the suspects were involved in this explosion," he said.
The source also said one of them allegedly had a degree in chemistry and had made the explosive device in his Moscow apartment. The source added that the suspect's name could not be disclosed in the interests of the investigation.
Syomin said the investigation was focusing on a turf war between commercial structures, although terrorism was under consideration. He also said the device was a homemade bomb with an electric fuse, adding that it was without any solid encasement and its only damage-producing element was the blast wave.
He said most of the casualties were market traders, including five people from China and one person from Vietnam, but no Muscovites.
One witness said he had seen a bag being brought to the scene before the explosion.
"We saw three people leave a bag at the market's cafe," he said. "Knowing security measures, especially with regard to unattended items, two market employees ran after the people who left the suspicious bag. At precisely that moment it exploded."
Syomin said the explosive device, which was the equivalent of 1kg (2.2lb) of TNT, had probably caused a liquefied gas cylinder to detonate. Two bangs were heard, although police earlier said there had only been one explosion.
Like most markets in Moscow, many traders are from the North Caucasus region and former Central Asian Soviet republics, as well as China and Vietnam. Prosecutors initially investigated a turf war as being behind a September 2000 bombing that killed 13 in an underpass in the heart of Moscow, although the mayor suggested the "Chechen trace" could also be seen in the incident.
