According to a report from The Telegraph, Diaz, 28, told Liverpool he wanted to join Pep Guardiola’s side last summer after being made aware of their interest.
Liverpool were understood to be reluctant to sanction the transfer but enquired about the availability of Alvarez, 25, as part of the deal.
The report adds that City were quick to reject the offer as they didn’t want to see Alvarez join a Premier league rival.
Alvarez went on to sign for Spanish giants Atletico Madrid for a reported fee of £82 million, scoring 29 goals and providing seven assists in his 54 games last season.
