The attack took place in the heart of Karachi
Ten of the victims were French workers for a construction company and the other two were Pakistani - one is thought to have been the suicide attacker.
Police say the bus - which belonged to the Pakistani navy - exploded after being hit by a car driven by the attacker outside the Sheraton Hotel in the centre of Karachi.
The bus, which was on its way to the city's dockyard, was ripped apart by the violent explosion and the windows of the nearby Pearl Continental hotel were shattered.
Loud explosion
More than 20 people, including 12 French nationals, were injured when the powerful bomb shattered the bus, creating a large crater, witnesses said.
"The sound was so loud I think you could have heard it from 10 kilometres (six miles) away," a police officer at the scene, Munir Sheikh, said.
"I was just standing on the street and the noise was so loud it was frightening."
Most of those on board were French workers employed by a company constructing submarines for the Pakistani navy.
The French President, Jacques Chirac, has strongly condemned the attack and is sending his defence minister, Michele Alliot-Marie, to Pakistan.
It is not yet clear who is behind this attack.
But police said they would investigate possible links between the bombers and the al-Qaeda network as well as Pakistan's regional rival, India.
"We cannot rule out the involvement of al-Qaeda, but our suspicions are across the border. I am pointing towards India," the Reuters news agency quoted Sindh province police chief, Kamal Shah, as saying.
Cricket tour called off
The New Zealand national cricket team, who were staying at the Pearl Continental hotel across the street, were due to begin a five-day test match in Karachi on Wednesday.
But the team's manager, Jeff Crowe, said they would call off their Pakistan tour and head back home.
Members of the Pakistan national side, which was staying at the same hotel, said they narrowly escaped getting hurt.
"I am lucky that I was not in my room and was having breakfast... my room is totally destroyed," cricket star Shahid Afridi said.
Karachi has been the scene of many sectarian killings recently but there have only been a few incidents of foreigners being targeted.
The American journalist Daniel Pearl disappeared in Karachi in January while researching a story on Islamic militants and a video of his killing was later handed to the United States consulate.
In March, two Americans were among five killed when attackers threw grenades at a church in the diplomatic enclave of the Pakistani capital, Islamabad.
President Musharraf has been tackling extremist religious groups and banned five of them in January.
A BBC correspondent in Islamabad says the high-level meeting called by the president is expected to announce new security measures and may even lead to a crackdown against suspected militant groups.