Sources: Knicks confident in deal

The New York Knicks and Houston Rockets continued to work on a Tracy McGrady trade in advance of Thursday's 3 p.m. trading deadline, with three sources close to the process insisting late Wednesday that the trade can still be consummated in time even though the sides have clashed on some of the final parameters.

"I'm pretty confident," one source said Wednesday night.

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But that was before sources said that the Rockets had reached agreement with the Kings to acquire Kevin Martin. The deal struck Wednesday night will send Martin, Kenny Thomas, Hilton Armstrong and Sergio Rodriguez to the Rockets for McGrady, Carl Landry, Joey Dorsey and an undisclosed amount of cash.

The Rockets and Kings were, however, trying to involve the Knicks in a three-team trade that would land McGrady in New York.

Sources say the Knicks are also increasingly interested in swinging a separate deal with the Chicago Bulls before the deadline that would send out Al Harrington in exchange for Tyrus Thomas and the expiring contract of former Knicks center Jerome James.

After Houston had narrowed the McGrady field Tuesday to the Knicks and Bulls as the only destinations for the disgruntled two-time scoring champion, Chicago began moving in different directions with its trade assets as Wednesday wore on. Sources say that the Rockets' trade energies were thus focused on trying to reach a consensus with the Knicks on the draft considerations needed to clinch an agreement without the involvement of a third team.

"I'm hopeful," Knicks president Donnie Walsh said. "It's a matter of trying to a fair deal for your franchise and a fair deal for the other franchise."

In exchange for taking back the Knicks' Jared Jeffries -- whose contract will pay as much as $7.6 million next season once a trade kicker is applied -- Houston was seeking three assets: New York's 2012 first-round pick, the right to swap first-round picks with the Knicks in the 2011 draft and Knicks rookie Jordan Hill.

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Yet sources say New York balked Wednesday, even though shedding Jeffries' contract would enable the Knicks to sign two top-tier free agents this summer. The Knicks, sources said, conveyed to the Rockets that they're only willing to package two of those assets along with Jeffries and the $13.7 million expiring contract of Larry Hughes for McGrady's own expiring deal valued at $22.5 million.

Sources say the Knicks also want 1-to-10 lottery protection on any draft pick it surrenders to the Rockets, while Houston is pushing for the 2012 pick to be fully unprotected.

"We'd like McGrady and the cap relief," one Knicks source told ESPN.com's Chad Ford on Wednesday. "But the Rockets are asking for too much. We're willing to pay a premium to make a deal. But the price right now is still too high."

It's not clear if that impasse is what led the Rockets to turn to the Kings.

The Bulls' re-entrance in McGrady talks, meanwhile, is considered unlikely even though Houston remained open to the possibility, after Chicago struck a deal with Milwaukee involving guard John Salmons.

The Bulls pulled Salmons out of Wednesday's game in New York because of a pending trade that will send Salmons to the Bucks for two expiring contracts. ESPN.com's Chad Ford reported that the Bulls would get Kurt Thomas and Francisco Elson, while the Chicago Tribune reported that they could receive those two or Hakim Warrick and Joe Alexander. Chicago has also had increasingly serious discussions with the Knicks on the Ty Thomas-for-Harrington front; Salmons and Thomas were both part of the Bulls' most recent McGrady offers.

Finding a home for Salmons' $5.8 million salary next season was huge for the Bulls, since it will give them sufficient salary-cap space to bid for a top-tier free agent to pair with All-Star guard Derrick Rose -- along with teams such as New York, Miami, New Jersey and the Los Angeles Clippers, who joined that enviable club by shedding the contracts of Al Thornton and Sebastian Telfair in a three-way trade earlier Wednesday that landed Antawn Jamison in Cleveland.

But Chicago has been shopping Thomas for weeks and is still intent on moving him, sources say, although the Bulls have been hoping to score at least one first-round pick for the enigmatic power forward.

The Knicks have offered the requisite expiring contract in Harrington -- who can also give the Bulls offense a jolt -- but are not offering draft considerations in a Thomas deal, sources said.

Senior writer Marc Stein covers the NBA for ESPN.com. ESPN NBA Insider Chris Sheridan contributed to this report.