The newspaper reported Asda had been given the all clear to make the play by its US parent Wal-Mart, which has become frustrated at the lack of progress on expansion.
Asda has shown interest in Homebase and Argos owner Home Retail but has also looked at a number of other firms based both on High Streets and out-of-town shopping parks.
Observers said it may also have looked at value clothing chain New Look.
In February, Asda chief executive Andy Bond said he planned to double its non-food sales in the next three to five years. Bryan Roberts, an analyst at Planet Retail, said an acquisition would be necessary to achieve that level of growth.
Sources said Asda was nearing a decision and an agreement on any deal could be completed in the first half of this year.
