RANGERS MANAGER Walter Smith has revealed that the Ibrox club are actively considering joining Celtic in the pursuit of James McFadden.

Birmingham City have emerged as favourites for the 24-year-old Everton striker's signature with a fresh £4m bid thought to have been made in the last few days, but Celtic - who had a loan offer rejected by the Goodison Park club a fortnight ago - are also expected to improve their offer for the boyhood Parkhead fan before the closure of the January transfer window.

Although the Ibrox club's hopes of financing the deal would have been more straightforward had they banked £8.5m from the sale of Alan Hutton, Smith said last night that money could yet be found for a player who can genuinely improve the first team and that McFadden, with whom he worked at Scotland, was a player in which they had an interest.

"It will depend," Smith said when asked about any new arrivals. "We will only do it if somebody can come in to improve the team. We have got the bulk of it already and these players are difficult to get during the January transfer window.

"There's no clubs wanting to get rid of good players in this particular time, so if we can't get it we will not just be getting somebody for the sake of it James McFadden is someone we have been considering. But we are looking at a lot of players over the last two or three months."

Another option for McFadden is to remain at Everton, with the club keen to start talks on a contract extension and the player seeing more first-team action in recent weeks. "A lot of clubs are monitoring the situation but Birmingham is the front-runner," a source close to the player said last night.

Meanwhile, there were conflicting reports last night about the future of Hibs full-back David Murphy. Despite suggestions that Birmingham were considering a new £1.75m bid for the player, a source close to the player told the Sunday Herald that the Midlands club had accepted that their pursuit of the defender had failed.

Speaking after Hibs' 3-0 victory over Inverness Caledonian Thistle, new manager Mixu Paatelainen admitted he was keen to have the player back as soon as possible.

"It is good to hear that the bids are increasing," Paatelainen said. "But he remains a Hibs player and I am looking forward to using him. He is a fantastic left back."

Meanwhile, one player who won't be heading for Glasgow is Henrik Larsson