This report follows recent rumours that Valencia chairman, Peter Lim, has held discussions with Cancelo's agent, Jorge Mendes. If the Portuguese international were to leave in January, it's reported that it would be a loan deal until the end of the season.
Cancelo made the switch to the Etihad Stadium in the summer, in a deal worth around £55 million. Since moving from Juventus, Cancelo's gametime has been limited and has found himself competing with England international Kyle Walker for the starting spot.
The report also confirms German champions Bayern Munich are interested in the right-back, with the Bundesliga side also exploring the option of a January loan deal.
Follow us on Twitter for live updates: @City_Xtra