Police cited persistent information that the blast was aimed at scaring market vendors into shelling out protecting money.
Mayor Muslimin Sema said extortionists could be behind the blast because vendors have become tough against their activities.
Probers have discounted an earlier theory that a quarrel between a man and his wife caused the deadly explosion.
Earlier reports said Hamsa Maulana allegedly placed a grenade in the handbag of his wife Snooky, leading to the blast along a busy street.
The couple, both Maguindanaoans, were questioned over the explosion that initially triggered fears of a terrorist attack.
Witnesses, including some of the wounded, earlier identified the duo as the ones who had the grenade before it went off.
Snooky Maulana had reportedly been screaming that a grenade had been placed in her handbag just before she threw it to the street.
The device exploded, killing and injuring mostly sidewalk vendors.
But Chief Inspector Ramonito Pachoco, chief of police Precinct 1 which has jurisdiction over the market area, said the Maulanas gave conflicting statements when asked what they were doing at the scene before the grenade went off and why they were spotted there wearing different clothes minutes after the blast.
The couple, however, denied that their spat had triggered the explosion.
Sema said the vendors have been providing information to the city’s peace and order council about the extortionists.
Since last April, more than a dozen extortionists, mostly also engaged in drug trafficking and some identified with the Pentagon kidnap-for-ransom syndicate, have been arrested with the help of the vendors.
In previous years, bomb blasts in the southern Philippines have largely been blamed on Muslim separatists.
However, the main separatist group, the Moro Islamic Liberation Front, swiftly denied any hand in this incident. — Mike Frialde, wire reports