Two teenagers have been arrested on suspicion of murder after Nellie Geraghty, 79, suffered serious head injuries as she desperately tried to cling on to the bag during the attack in Oldham, Greater Manchester.
Police said she died in Royal Oldham Hospital at around midnight.
The two youths were originally arrested on suspicion of robbery but are now being quizzed on suspicion of murder.
Former school cleaner and cotton mill worker Mrs Geraghty was found collapsed in an alleyway near her home in Shaw just before noon on Thursday.
Inside her handbag was a blue velvet bag containing the ashes of her husband, Frank, – who died 17 years ago – in a small box, and also £200 in cash.
The handbag was missing from the scene but the strap was still in the pensioner’s hand.
In a moving tribute statement, her family said: “Nellie is much loved and will always be remembered by all her friends and family.
“We have lost the best mum in the world, the best sister, grandmother, auntie and friend a person could ever have.
“The world would be a better place if there were more people like you. Heaven will be blessed with your presence. Our sad loss is heaven’s gain.
“We will miss you terribly. Until we meet again, my mum, my sister, my friend, rest in peace.”
Shaw-born Mrs Geraghty and her husband, a fellow cotton mill worker who went on to work for the Oldham co-operative bus company, had four children.
A spokesman for Greater Manchester Police said: “Two boys aged 14 and 17 have been arrested on suspicion of murder and remain in police custody.”