The report, citing anonymous sources familiar with the matter, said the sides are discussing a deal of between $1.5 billion and $1.7 billion that could be finalized in a few weeks. It also said the final amount could exceed $2 billion.

J&J declined to comment on the report. The Justice Department also had no comment.

Earlier this month, the company said it would take a special charge of about $600 million in the second quarter to bolster reserves for a potential settlement of civil lawsuits related to how it marketed Risperdal and other drugs.

J&J is facing a number of lawsuits from states that allege it improperly marketed Risperdal for patients and conditions for which it was not approved by U.S. regulators - including to elderly residents of nursing homes.

Federal prosecutors in Washington, D.C., nixed a tentative $1 billion settlement with J&J earlier this year and were holding out for more, according to published reports.

In 2009, Pfizer Inc agreed to pay $2.3 billion to settle an investigation into the illegal promotion of withdrawn pain drug Bextra and other medicines - the largest penalty to date paid by a drugmaker for illegal marketing.

While doctors are free to prescribe medicines as they see fit, companies are only allowed to promote them for uses specifically approved by the Food and Drug Administration.

Risperdal, formerly one of J&J's biggest products before going off patent, is approved to treat schizophrenia, bipolar disorder and irritability associated with autism.

J&J shares were virtually unchanged in extended trading from their New York Stock Exchange close at $67.

(Reporting By Bill Berkrot and Ransdell Pierson; Editing by Bernard Orr)

• A Permanent Economic Emergency