The Swansea City striker has been heavily linked with a move to the Etihad Stadium in recent days, with the player's agent claiming on Wednesday that a deal could be "a few days" away.
However, Pellegrini was not prepared to discuss the reported £30 million transfer at a news conference on Friday, insisting he would wait until a deal had been completed.
"I will answer this question when I know more about that because I don't talk about rumours," he said.
"We are going to replace Alvaro Negredo because it was the decision that we took in the moment we sold him.
"We decided to see in December if we needed another striker.
"We need another striker, so we are going to find which is the best player to bring in."
"For the moment there is no news," he added.
"I think James wants to stay and we want James here, so I hope he will sign [a new deal]."
