The two sides "expect to be able to finalize and announce the currency hub," said one source, speaking on condition of anonymity because the matter is not yet public.

The move falls in line with Beijing's ambition to promote its currency to more international investors and eventually turn the "redback" into a global reserve currency, while at the same time expanding China's already considerable political and economic clout.

Earlier on Tuesday, Qatar became the Middle East's first hub for clearing transactions in yuan in a step that could help oil exporting countries in the Middle East reduce their dependence on the U.S. dollar.

The Industrial and Commercial Bank of China's Doha branch has been appointed as the clearing bank for yuan deals in Qatar, China's central bank said on Tuesday.

China has in the past two years appointed clearing banks for Taiwan, Singapore, London, Frankfurt, Paris, Luxembourg and Seoul. Hong Kong and Macau had clearing banks earlier. Sydney is expected to join the list later this month.

In Canada, Toronto and Vancouver have been jostling to host the clearing hub, but a second source familiar with the matter said Toronto has edged past its West Coast rival in the race.

A clearing bank can handle all parts of a transaction from when a commitment is made until the deal is settled. Having such a bank can reduce costs and the amount of time taken for trading, boosting activity in a financial center.

The Canadian Chamber of Commerce has publicly endorsed the establishment of a yuan hub in Canada as a crucial step toward strengthening the country's relationship with China and boosting trade.

"This is the best and most effective way to boost trade with China," said Hendrik Brakel, a senior Chamber of Commerce economist. "Right now almost all of Canada's trade with China is dollar-denominated. So just the foreign exchange savings from being able to convert directly into yuan, without going through the intermediation of U.S. dollars, that is a big savings in terms of conversion costs alone.

"We've also heard that Chinese companies really prefer doing business in yuan...so if the Canadian importers agree to pay in yuan, we've heard there are discounts of up to 5 percent," he said. "So this is really about doing more trade with China."

The business lobby group said a yuan trading hub would also enable more Canadian issues of yuan-denominated debt.

Bank of Canada Governor Stephen Poloz said on Monday a yuan hub would be "good for business".

(Reporting by Randall Palmer and Euan Rocha; Editing by Peter Galloway)

By Randall Palmer and Euan Rocha