The 27 year old Argentine has fallen out of favour at the Bernabeu since the arrival of Klaas Jan-Huntelaar for the Madrid side.
Liverpool were linked with an attempt to sign the player in January when Robbie Keane departed but with important fixtures between Madrid and Liverpool coming up – the deal was effectively dismissed.
However, the player has only one year left on his contract and Liverpool would offer the player an opportunity to get back in to the limelight.
Whilst his goalscoring record is not overly impressive at Madrid, his record at previous clubs Sevilla and Barcelona are.