David Moyes has revealed a Championship club had made an approach for the Nigeria international.
However, the Everton boss said it was too early to say whether the move would be a loan or permanent, but the Leicester Mercury understands it is City.
City have also been linked with a move for Aston Villa striker John Carew.
The Norway international has fallen out with manager Gerard Houllier and is almost certain to leave Villa Park during the January transfer window, but sources at the Premier League club say City have not made an approach.
City boss Eriksson is targeting a quality striker and has previously tried to entice Tottenham Hotspur's Robbie Keane and Manchester City's Roque Santa Cruz to the Walkers Stadium, and even made an inquiry about Emile Heskey's availability.
Eriksson was promised the financial backing of the club's Thai owners to make the deals happen, but was unsuccessful as neither Keane or Santa Cruz wanted to drop down into the Championship. He will face a similar issue with Yakubu.
One possibility is for Eriksson to offer a contract with a non-promotion release clause should City fail to go up this season.
Everton turned down a £6million offer for Yakubu from West Ham United in the summer but the 28-year-old, who signed a five-year contract with the Toffees in 2007 after his £11m transfer from Middlesbrough, could be available for around £4m as he has struggled to force his way into Moyes' side this season.
Yakubu has scored just one goal in 13 appearances, starting only six, and the Merseysiders may be prepared to cash-in to finance any transfer activity this month as they look to avoid a relegation dogfight.
With top scorer Tim Cahill away with Australia at the Asia Cup, Moyes wants to bring in another striker but has limited funds.
Meanwhile, City will face a fight with Wolverhampton Wanderers to convince defender Curtis Davies to re-sign.
Davies, who Eriksson wants to sign, has returned to Villa after his loan period finished and has said he wants to review all his options during January before committing his future.
Davies has said he wants to stay in the Premier League and Eriksson has admitted City may struggle to sign the centre-back if top-flight clubs make him an offer, but Leicester will be able to match any financial package Wolves offer Davies.
Toffees manager However, the Everton boss said it was too early to say whether the move would be a loan or permanent, but the Leicester Mercury understands it is City.
City have also been linked with a move for Aston Villa striker John Carew.
City boss Eriksson is targeting a quality striker and has previously tried to entice Tottenham Hotspur's Robbie Keane and Manchester City's Roque Santa Cruz to the Walkers Stadium, and even made an inquiry about Emile Heskey's availability.
Eriksson was promised the financial backing of the club's Thai owners to make the deals happen, but was unsuccessful as neither Keane or Santa Cruz wanted to drop down into the Championship. He will face a similar issue with Yakubu.
One possibility is for Eriksson to offer a contract with a non-promotion release clause should City fail to go up this season.
Everton turned down a £6million offer for Yakubu from West Ham United in the summer but the 28-year-old, who signed a five-year contract with the Toffees in 2007 after his £11m transfer from Middlesbrough, could be available for around £4m as he has struggled to force his way into Moyes' side this season.
Yakubu has scored just one goal in 13 appearances, starting only six, and the Merseysiders may be prepared to cash-in to finance any transfer activity this month as they look to avoid a relegation dogfight.
With top scorer Tim Cahill away with Australia at the Asia Cup, Moyes wants to bring in another striker but has limited funds.
Meanwhile, City will face a fight with Wolverhampton Wanderers to convince defender Curtis Davies to re-sign.
Davies, who Eriksson wants to sign, has returned to Villa after his loan period finished and has said he wants to review all his options during January before committing his future.
Davies has said he wants to stay in the Premier League and Eriksson has admitted City may struggle to sign the centre-back if top-flight clubs make him an offer, but Leicester will be able to match any financial package Wolves offer Davies.
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