Granada [1] is not really the best place to shop for Nicaraguan handicrafts since most people save that activity for Masaya [2]. But the steady volume of tourist traffic through Granada is slowly changing the picture. There are several gift shops around Parque Colón [3], as well as frequent street vendors.
The municipal market is located one block south of the plaza, but spills up Calle Atravesada as well. It’s geared more for the locals than for tourists, but is lots of fun to visit.
Maverick Reading & Smoothie Lounge (tel. 505/2552-4120, mavericks_granada [at] yahoo [dot] ca, open 9 a.m.–6 p.m. Tues.–Sat., 10 a.m.–noon Sun.) has crafts, gifts, books, and magazines.
Granada is guayabera country, and there are several places to buy the elegant Latin shirts, the best (and most expensive) being Guayabera Nora, right around the corner from the Bearded Monkey.
At Sultan Cigars (tel. 505/8803-9569, eddyreyes78 [at] yahoo [dot] es), Eddy Reyes and family can make you a custom labeled (your name on a cigar label) case in a couple of hours; otherwise visit Doña Elba Cigar Factory (located one block west of the Iglesia Xalteva, tel. 505/8860-6715, open 7 a.m.–7 p.m. daily).
Antique lovers will adore Casa de Antiguedades (tel. 505/8874-2034, haroldsandino [at] hotmail [dot] com) a block north of the park on Calle Arsenal.
Links:
[1] http://www.moon.com/destinations/nicaragua/granada
[2] http://www.moon.com/destinations/nicaragua/masaya/masaya-city
[3] http://www.moon.com/destinations/nicaragua/granada/sights/parque-colon