The move for the 27-year-old Australia international seemed to have hit the buffers after Palermo hit out at City, but Eriksson retains hope of doing a deal.
He told Sky Sports News: "I hope it is still alive, but there were some problems.
"He was here, he trained with us and he's a very, very good player. We knew that before, of course. I hope it's still alive and I hope, in the end, he will play for us.
"Today's Thursday, so I think it will be difficult to do something before the game against West Ham on Saturday, but I should welcome it if it happens."