City have targeted the 23-year-old as the successor to compatriot Carlos Tevez at the club, and they finally agreed to match the release-clause figure in his contract.
However Tevez's move to Corinthians sensationally collapsed on Tuesday night when the club released a statement saying that time had run out to complete a deal before the closure of the Brazilian transfer window.
City slicker: Sergio Aguero looks poised to sign for Manchester City for ?38m
The statement said: 'The board of SC Corinthians hereby officially announce the impossibility of signing the Argentine striker Carlos Tevez.
'While recognising the efforts of Manchester City and everyone involved in the negotiation, there is no more time for the transfer to be completed, given that the (Brazilian) transfer window to sign players from abroad ends on Wednesday, July 20.
'Aware of the enormous dream of our supporters for the striker to once again play for Corinthians, the boardhopes to count on Tevez in the near future.'
Although a ?40m fee had been agreed between the two clubs, sources in Brazil indicate the deal broke down because the South Americans were unable to pay any cash up front, nor did they have enough time to produce City with bank guarantees that the money would be eventually arrive in four installments.
Can I kick it? No you can't: Carlos Tevez's move to Corinthians has collapsed at the 11th hour
Corinthians wanted to pay the fee over four years, with the first sum going to City in February 2012 aftera new lucrative TV deal kicks in.
They were not prepared to take out a loan to meet City's request to pay the first installment up front because they claimed bank interest rates in Brazil are among the highestin the world.
With Tevez wanting to leave City to be closer to his daughters, who are currently living in Argentina, Corinthians were sure that the 27-year-old would choose their offer overany from Europe.
They are already plotting a new move in January, when finances will be better, but City are ready to entertain offers from other clubs.
It has been suggested Tevez would be open to a move to Spain or Italy as his family may move to a European country more culturally similar to Argentina than England.
International star: Aguero has been involved in Argentina's ill-fated Copa America campaign
City were prepared to help their captain by lowering their ?50m asking price to aid a move to Corinthians, where Tevez played for two years from 2005, but they want the full fee if he is to move to a European rival. Inter Milan and Juventus have both shown interest.
Despite the collapse of the Tevez deal, City are set to push ahead with their bid for Atletico Madrid's star man.
Aguero, who scored 20 goals in 32 games last season, had been holding out for an offer from Real Madrid but that looks unlikely with Jose? Mourinho determined to sign Brazil forward Neymar from Santos.
City have offered Aguero, who is Diego Maradona's son-in-law, ?152,000 a week after tax, making him one of the highest-paid players in the world, and hope to have a decision bythe end of the week. Atletico are keen to close the deal so they can find signings.
Exit: Jo is set to end his City nightmare with a move to Brazilian side Internacional
Definitely on the way out of City is ?18m flop Jo, who is heading back to Brazil to join Internacional. The 24-year-old, who scored just six goals in 38 games for City after his move from CSKA Moscow in 2008 and spent time on loan at Everton and Galatasaray, has flown to his homeland after accepting the club's offer.
His arrival at Internacional could mean the club agree to sell Leandro Damiao to long-term suitors Tottenham. Damiao signed an extended contract this week, but that deal was put together to help the Porto Alegre club demand a bigger fee.
Tottenham have already had two bids rejected for the 21-year-old the last one of ?12m but remain keen on the striker who has scored 24 goals in 29 games? this year.
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Source: Daily Mail
Source: Daily Mail