Gareth Taylor’s side European dream came to an end in frustrating fashion at the Academy Stadium, where Claudia Zornoza Sanchez scored the only goal of the game to inflict a 2-1 aggregate defeat on City.
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The Spanish midfielder beat Karima Taieb with a fizzing drive immediately before half-time after the home side failed to clear a corner.
Roared on by the first crowd at the Academy Stadium for 18 months, City went in search of a winner after the break, with Hayley Raso going closest with an effort that hit the crossbar, but the visitors hung on to reach the group stage.
Match report: City 0-1 Real Madrid
Highlights: City 0-1 Real Madrid