LIVERPOOL have cooled their interest in Aston Villa's Gareth Southgate, seemingly leaving the way clear for Middlesbrough boss Steve McClaren to intensify his efforts to land the England defender.

With Anfield target Sol Campbell making a controversial move from Tottenham to North London rivals Arsenal, it was thought Liverpool might refocus all their attention on £8m-rated Southgate.

But manager Gerard Houllier is understood to have instead switched his sights to Real Madrid's Brazilian defender Julio Cesar.

Houllier is said to have notified the Spanish champions that he wants the 22-year-old, who is priced at £5.5m.

Liverpool believe he represents better value than 30-year-old Southgate.

An Anfield insider stressed: "Southgate's age is a factor, as is what Villa are asking for him. He's also used to playing as one of three central defenders, and Gerard prefers to play with a flat back-four.''

But Boro, who more often than not under former boss Bryan Robson played with three central defenders, have lodged a £7m offer for Southgate.

The need for his added experience grew yesterday when Boro centre-back Gary Pallister announced his retirement through injury.

The 36-year-old former Manchester United star underwent surgery on his back last season after managing only nine games.

But a combination of that chronic problem and a foot injury has forced Pallister to call it a day.

Pallister began his first spell with Boro in November 1984, when he arrived from Northern League Billingham Town for the nominal price of a set of strips and a bag of match balls.

But he made his name during a nine-year spell at Old Trafford after Alex Ferguson paid a then-British record £2.3m fee for a defender.

Pallister helped United to ten major honours, including four League titles and two doubles.

Initially capped while playing alongside Tony Mowbray on Teesside, Pallister made most of his 22 England appearances as a United player.

He rejoined Boro three years ago for £2.5m.

Pallister yesterday admitted: "I had discussed with Bryan Robson the possibility of playing this year.

"Unfortunately, following the back operation, a subsequent injury to a nerve in my foot has forced me to reluctantly make this decision.

"I would like to thank the fans, all the coaching staff and officials for their support.''

McClaren, who succeeded Robson last month, said: "Gary has enjoyed a fantastic career as one of the game's best defenders with Middlesbrough, Manchester United and England.

"However, his departure creates an opportunity for us to develop some of our talented, young players.''

To that end, Boro yesterday awarded a new contract to Republic of Ireland defender Jason Gavin.

The 21-year-old has signed a contract extension which will keep him at the Riverside until 2005.

Meanwhile, Bishop Auckland-born midfielder Mark Hudson, 20, has accepted a new two-year deal.

"Young players like Jason and Mark are exactly what I want this club to be about,'' McClaren said.

"They are both talented players who should be challenging themselves to push for a regular first-team place this season.

"Apart from the videos I've seen, I haven't had a good chance to watch either of them closely, but I've heard only good things about them from the staff.

"They speak of both lads very highly and I see our best young players as a big part of our future.''

* Greek giants Olympiakos are reported to be tracking Boro's French midfielder Christian Karembeu.

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