After City's vast outlay on strikers including Emmanuel Adebayor, Carlos Tevez and Roque Santa Cruz, the Ecuadorian was farmed out on loan to Portuguese side Sporting Lisbon for the early part of the season.
The 21-year-old Caicedo, who has already passed his medical with Malaga, joins the Spanish side third from bottom in the Primera Division and two points adrift of safety.
Caicedo joined City from FC Basel in January 2008.
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