Arsenal manager Arsene Wenger admits he was "scared" Theo Walcott would leave Arsenal at the end of his contract, but is now "99 per cent certain" a new deal can finally be signed this week.

The ex-Saints starlet would have been a free agent at the end of the season, and the club have been in negotiations to close out terms on a lucrative extension which would make Walcott among the highest-paid players at the club with a three-and-half-year contract worth close to £100,000-a-week, boosted by lucrative add-ons.

Wenger will be relieved when the ink is dry on the deal, having helped develop Walcott from a raw talent when bringing him from Saints seven years ago this month.

"I was scared at some stage, yes, that he could leave because it is like that with the experience I have in negotiations," Wenger said at this morning's press conference ahead of the Premier League game at Chelsea on Sunday.

"When things last too long, it is never a good sign.

"In that case, it took us some time to get where we want to get.

"It is still not finalised, but hopefully it will be done by this weekend.

"There is a possibility. My optimism is at 99 per cent now."

Arsenal beat Swansea 1-0 last night with a fine late goal from Jack Wilshere to book a place in the fourth round of the FA Cup.

Wenger is determined to get his side firing again in the Premier League following last weekend's disappointing 2-0 home defeat by Manchester City.

The Gunners are in the market to strengthen during the January transfer window, but only if they can find the right quality of player Wenger believes will add something to the squad.

Wenger confirmed there was interest in Crystal Palace's promising England international Wilfried Zaha.

However, the Arsenal manager insisted no formal offer had yet been lodged for the 20-year-old, who is also being watched by Manchester United.

"We are looking at him, but at the moment we have not made any bid for him," Wenger said.

"I don't know if Manchester United are in for him.

"Anyway, if you call any club for any player, they will tell you Man Utd, Milan, Real Madrid are as well in for him, but it is always difficult to know if it is true or not."

Arsenal have plenty of cash reserves, bolstered by the £24million summer sale of Robin van Persie to Manchester United.

Wenger maintains the Gunners are ready to spend big should they find the right man - and have been heavily linked with Napoli's Uruguay hitman Edinson Cavani.