Goal revealed on Sunday that the Gunners had disptached representatives to Germany in an attempt to thrash out a deal for the highly rated 20-year-old.
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The Bundesliga club's general manager Horst Heldt insisted on Thursday that Draxler would remain in Gelsenkirchen at least until the end of the season, and Wenger has now confirmed a January deal is off.
"The Draxler situation has been created by the newspapers, not by me. He will stay at Schalke," Wenger told reporters.
With talks dragging on, Goal reported on Thursday that Wenger has turned his attention to Lazio striker Miroslav Klose and Real Madrid youngster Alvaro Morata in a bid to solve his striker shortage.
Klose is 35 but is expected to be in the Germany squad at this summer's World Cup and remains a regular scorer for club and country.
Morata, 21, is at the other end of the age scale but is only on the fringes of the Real team and Madrid may consider a half-season in England a valuable learning experience for the Spain Under-21s international.