Dozens killed in Baghdad bombing
The man detonated an explosives-packed pick-up truck after reportedly attracting crowds of Shia laborers to his vehicle with the promise of work.
Reports of another near-simultaneous blast could not be confirmed.
The BBC's Andrew North in Baghdad says this appears to be the latest violence in a spiral of sectarian attacks.
The blast in Tayaran square happened at about 0700 (0400 GMT), at a time when it was crowded with day laborers from the Shia suburb of Sadr City who gather there every day hoping to find work.
"After the explosion, not a single person in the square was standing, I thought everyone was dead," Khaled Nasser, a laborer, told the AFP news agency.
He said his friends were "all cut in half, no legs, and for some I could only find their heads".
Mangled bodies were piled up by the roadside, some of them covered with paper, Associated Press reported.
Bloodied survivors were seen weeping or walking in a daze. Witnesses described thick, black smoke rising from the site.
Gunfire could be heard immediately after the explosion but it is not clear if this was the work of insurgent snipers or police.
Day laborers in the square have been targeted by bombers before.
Correspondents say attracting them with offers of work is a tactic used to ensure the greatest number of casualties. Hospitals were crowded with victims of the bombings
High unemployment and the collapse of Iraq's economy has increased the number of people dependent on such jobs.
The square is also located near several government ministries and a bridge which crosses the Tigris River to the heavily fortified Green Zone.
Last month saw some of the bloodiest sectarian violence in Iraq since the U.S. invasion in 2003. Correspondents say the city is gripped by a series of tit-for-tat sectarian killings.
On Monday, at least 66 people were killed or found dead in the Baghdad area and northern Iraq, AP reported.
They included 46 men who were shot in the capital - the apparent victims of sectarian death squads.