Royals boss Brian McDermott has been scouting the 25-year-old forward for months in an effort to boost his firepower, with Arsenal and Swansea City also showing interest.
It is believed a clause in Aspas' contract means he can decide his own future should a club meet Celta's £8.3 million valuation.
But McDermott confirmed he has ended their interest in Aspas, with Spanish club Valencia almost certain to win the race to sign the player, whose goals fired Celta to promotion to La Liga last season.
Speaking exclusively to the Reading Chronicle, McDermott said: "We've watched Iago play many times but he is very, very expensive. He would cost more than £8 million, that's for sure.
"He's also been a Celta Vigo striker all his life. They're down near the bottom of the league at the moment so I can't see him leaving in January, can you?"
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