Michael Schumacher is close to signing a deal with Mercedes to come out of retirement and compete in Formula One next year, Germany's Bild newspaper reported.

Mercedes have signed Germany's Nico Rosberg for 2010 but have yet to name his team mate with media speculation swirling around the retired 40-year-old German.

Bild said a deal with the seven-times world champion could be announced as soon as next week, without citing any sources.

Schumacher was lined up for a brief comeback this year as a stand-in for injured Ferrari driver Felipe Massa but had to pull out due to his own neck problem.

Mercedes Grand Prix chief executive Nick Fry said on Thursday an announcement on the second driver could come before the Christmas holiday but was more likely to be in early January. He said there were about four names on the shortlist.

As recently as late November, Schumacher's spokeswoman Sabine Kehm had said she would be surprised if the German, who will turn 41 in January, came out of retirement.

"Michael is enjoying his life very much. To me, a return would therefore be highly unlikely at the moment," she said.