In-Kyung Kim, the 19-year-old native of Seoul, whose best finish was a tie for fourth at last month's LPGA Corning Classic, ran off six birdies at the tree-lined Locust Hill course but gave up the outright lead with a three-putt bogey on the last hole.
'I'm still having fun and I have two more days to go,' she said. 'I think right now I'm in a good position and I can try to win this weekend.'
Eight-time tour winner Mi Hyun Kim (68) had five birdies through 11 holes but lost momentum with four holes to play when she three-putted from 30 feet for her only bogey.
Both of them moved to 7-under 137, two ahead of Angela Stanford (69), who moved into contention despite a double-bogey finish. Lorena Ochoa of Mexico, who tops the money list with $1.25 million shot a 71 to move to 4 under.
First-round leader Cristie Kerr picked up birdies on Nos. 2 and 3 to get to 8 under but struggled on the back nine with two bogeys and a double bogey to finish with a 75 for a total of 3 under.
Norway's Suzann Pettersen (75), who captured her first major title at the LPGA Championship two weeks ago, also lost ground with a double bogey on No. 12 and a two-shot penalty for slow play on No. 14 to drop to 1 under. Defending champion Jeong Jang (73) was at even par.
The $1.8 million tournament, sandwiched between two majors, drew 47 of the top 50 money winners, but two have dropped out with injuries. Natalie Gulbis, who opened with a 78, withdrew on the third hole with recurring back pain and Stacy Prammanasudh left Thursday with a thumb injury.
In-Kyung Kim had pinpoint accuracy off both tees and fairways and made three long putts for birdie from 25 feet on No. 9 and from 20 feet on Nos. 5 and 12.
'My driver was really good and second shot was real close to the hole, so I had lots of opportunity to make a birdie,' she said.
She missed the cut in four of her first six tournaments but has stayed through the weekend in the past five, tying for 21st at the LPGA Championship.
'I feel (I'm) getting better every day,' she said.
Mi Hyun Kim won the SemGroup Championship in May, tied for second in Corning and picked up two other top-10s this year. The 30-year-old Inchon native has earned $7.1 million since joining the tour in 1999, including a season-best $1.3 million last year.
She thinks the tight fairways suit her game better than many of her competitors.
'I have more confidence when I play here because (the) course is not so long,' she said. 'I'm not a long hitter, I'm more an accuracy player.'
But she also worries about how she'll handle the pressure if she's among the leaders Sunday. 'Many people cheering for me, and so I really want to win this tournament,' she said.