This legendary anecdote, though oft repeated in reliable sources, is never supported by either the name of the reported or of the newspaper that supposedly printed it. At least not that I've ever found.
"We can only speculate about the reasons for Nobel's establishment of the prizes that bear his name. He was reticent about himself, and he confided in no one about his decision in the months preceding his death. The most plausible assumption is that a bizarre incident in 1888 may have triggered the train of reflection that culminated in his bequest for the Nobel Prizes. That year Alfred's brother Ludvig had died while staying in Cannes, France. The French newspapers reported Ludvig's death but confused him with Alfred, and one paper sported the headline "Le marchand de la mort est mort" ("The merchant of death is dead.")"
"In 1888 a French newspaper--thinking it was Alfred and not his brother who had passed on--ran his obituary under the cutting headline "Le marchand de la mort est mort" (the merchant of death is dead)."
Odd that some bios even quote a whole sentence, "Dr. Alfred Nobel, who became rich by finding ways to kill more people faster than ever before, died yesterday," but nobody knows who first wrote it. Of course, it would have been in French.