Madrid take step closer to Diaz
Malaga-born Diaz' deal at City expires at the end of the season, with the 19-year-old yet to agree new terms at the Etihad.
It is understood that fresh contract talks half stalled with the City hierarchy, leaving Real Madrid waiting patiently in the wings.
According to Spanish tabloid 'MARCA', the deal is done with Diaz set to be the next player to sign for Real Madrid. They understand that the deal will be announced on January 1, however they will have to wait until the end of the season when his contract expires to have his services permanently. This would mean that City would lose one of their brightest talents for free, failing to gain value on the £200,000 which they paid Malaga in 2013.
With the 'Daily Mail' also reporting that Real Madrid are growing "increasingly confident" of acquiring his signature, it is looking unlikely that he will renew his deal with the 'Cityzens'.
Diaz is concerned about his lack of regular first team opportunities and wants to try his fortunes elsewhere, the 'Sun' understand.
He started his career with Malaga, before being signed for City's youth team and coming through the club's ranks.
Diaz has played just 148 minutes across three games this campaign - 15 minutes in the Community Shield win over Chelsea, 55 minutes versus Oxford United in the Carabao Cup, and 78 minutes where he scored twice against Fulham.