Honda Motor Co is close to a deal on the sale of its Formula One motor racing team, Japan's [Images] biggest circulation newspaper said on Tuesday, without identifying the buyer.

The team is expected to test a new vehicle this week, powered by a Mercedes engine, in a clear sign that it will continue racing after Honda announced its withdrawal from the sport in December.

"We expect to be able to make an announcement from the company and the team in the near future," the Yomiuri daily quoted a source at the company's Japan headquarters as saying.

"Honda has been making all possible efforts to avoid the worst option of having to disband the team," the source said.

Honda driver Jenson Button [Images] and team principal Ross Brawn would stay in place under the deal, the Yomiuri said.

The report came just weeks ahead of the start of the season in Australia [Images] on March 29, but the team would have to fly its cars to Melbourne at least a week before that in order to qualify.

British entrepreneur Richard Branson's [Images] Virgin Group was among those linked to the team after it was put up for sale, but Honda said last month they saw no serious buyer.

That appeared to leave the Japanese manufacturer with a straight choice of agreeing to a planned management buyout or closing down the British-based team with the loss of about 700 jobs.

A spokeswoman for Honda said there had been no new developments and that negotiations were continuing.

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