Grapevine: Schumacher speculation intensifies

Although Bild did not quote any sources, it said it had learned that a one-year deal had been concluded and that a contract would be signed imminently ready for an announcement next week.

Both the Schumacher camp and Mercedes declined to comment on the report.

Rumours that Schumacher would end his 14-year association with Ferrari to join Mercedes' new works team have been rife since the end of the 2009 season.

Mercedes has already signed Nico Rosberg for its new project formed from the Brawn team, but was unable to keep hold of world champion Jenson Button, who left for McLaren. Although Nick Heidfeld was initially favourite for the vacant seat, this would leave Mercedes starting its high-profile new venture without a previous race-winning driver in its line-up.

Seven times champion Schumacher was a Mercedes protege before reaching F1 and it was once thought inevitable that he would eventually end up in a Mercedes-powered F1 car. He also enjoyed huge success with Mercedes GP team principal Ross Brawn at both Benetton and Ferrari.

Schumacher last raced at the top level in 2006 but came close to a comeback to deputise for the injured Felipe Massa at Ferrari this summer before discovering that neck damage from a motorcycle crash had not fully healed.

Mercedes GP CEO Nick Fry indicated earlier this week that the team was unlikely to announce its second driver until the new year.

"We might say something before Christmas but it's more likely to be the beginning of January," Fry said.