Reigning U.S. Open winner Birdie Kim, who had a share of the first-round lead, carded an even-par 71 to finish alongside Hee-Won Han at 6-under-par 136.
Daniel found trouble early with a bogey at the par-4 first. She countered at the par-3 second and hit a 6-iron off the tee that landed within a foot of the hole for a tap-in birdie. Daniel followed that up with a birdie at the par-4 third after her second shot stopped within 12 feet.
The 48-year-old played her second shot inside 7 feet for a birdie at the par-4 fifth. Daniel continued her fine play with a birdie at the par-4 13th and another birdie at the par-3 14th.
At the par-4 15th, Daniel dropped her approach within 8 feet and drained the birdie try to make it three in a row. Daniel added a birdie at the par-5 17th before the second round was halted due to inclement weather.
'I came back into the clubhouse and sat around and chatted for a little while,' Daniel said.
After the delay, Daniel returned to Highland Meadows Golf Club and parred the par-5 closing hole to secure the outright lead heading into the weekend.
'It was a solid round of golf' she said. 'It make a big difference when you're hitting fairways out here because you can control the ball into the greens.'
The Hall of Famer enjoyed her rookie season on the LPGA Tour in 1979. Since then she has accumulated 33 career titles.
'I think I would call myself semi-retired at this point,' said Daniel. 'I've been torn for a while. When I'm out here sometimes I want to be home. I can honestly say that when I'm home I don't want to be on tour.'
Kim burst onto the scene with a thrilling victory at the U.S. Women's Open two weeks ago. She has continued to play well this week and is in good position through two rounds. She had a rocky second round, however, with three bogeys and three birdies.
Han started on the back nine and collected a birdie at the 12th. She birdied the 17th, but gave that shot back with a bogey at the following hole.
The 27-year-old made her move on the front side with a birdie at the first and another at the fourth. Han then hit a wedge inside two feet for a tap-in birdie at the ninth.
Brittany Lang, who is playing in her first event as a professional, shot a 68 to share fourth place with Gloria Park, Jeong Jang, Marilyn Lovander, Dorothy Delasin and defending champion Meg Mallon at 5-under-par 137.
The 36-hole cut fell at 2-over-par 144 with 75 players qualifying for the weekend.