Chelsea have pulled out of a deal to sign Manuel Ugarte after Paris Saint-Germain offered the Sporting midfielder a bigger financial package. Ugarte, whose contract contains a £52m release clause, received a lucrative offer from Chelsea and there was a growing expectation that the Uruguay international would become Mauricio Pochettino’s first signing. Talks were positive and the club appeared to be leading the race. However PSG have been pushing hard to sign the 22-year-old and the French champions refused to be beaten on wages. Chelsea have responded by withdrawing from talks after deciding they were not willing to pay above the market rate for Ugarte. There is no truth in suggestions they were going to buy a stake in Sporting as part of the deal. Chelsea, who have spent close to £600m since last summer, are rebuilding and are prioritising reinforcements in midfield. They are expected to move for Brighton’s Moisés Caicedo. The Ecuador international, who is likely to cost at least £80m, is also wanted by Arsenal and Liverpool. The intention for Chelsea was to buy Caicedo and Ugarte. Chelsea, who need to cut their bloated squad, have given Mateo Kovacic permission to speak to Manchester City. Manchester United have opened talks over Mason Mount and Milan want Ruben Loftus-Cheek. N’Golo Kanté is out of contract this month, is yet to sign an extension and is attracting interest from clubs in Saudi Arabia. Chelsea, whose midfield includes the £106.8m Enzo Fernández, sold Jorginho to Arsenal in January. Pochettino could switch his focus to other targets after missing out on Ugarte but a deal to sign Declan Rice is unlikely. Arsenal are favourites to sign the West Ham captain. Sources at Chelsea have insisted that Financial Fair Play concerns will not be a factor in their summer business. But there is a need to recoup funds and several players could leave. Real Madrid are monitoring Kai Havertz after confirming Karim Benzema’s departure. However Tottenham’s Harry Kane has emerged as Madrid’s favoured replacement for Benzema.