Cristie Kerr fired a 9-under-par 63 and is alone in second place at 11-under-par. Catriona Matthew (66) and Emilee Klein (68) share third place at minus 10.
Koch flew out of the gate Friday with three birdies in her first five holes, including a chip-in at one and a 9-iron to an inch at the third. She dropped her first shot of the tournament at the par-4 ninth when she three-putted from 50 feet.
The Swede rebounded at the 10th when she knocked an 11-wood to six feet to set up birdie. Koch made it two in a row at No. 11 after she played a five-wood to seven feet, but trouble loomed for the 31-year-old.
She three-putted the 12th for another bogey, but once again wasted little time in reclaiming the lost stroke. Koch hit a sand-wedge to six feet at the par-5 13th to set up birdie and polished off her round with an 18-foot birdie at the 17th.
'I didn't hit the ball as good today,' said Koch, who set a new course record Thursday with her 62. 'There was good weather and the course is scorable. I felt good about my game.'
Koch knows that low scores are on the course and she needs to keep making birdies if she is to visit the winner's circle Sunday.
'You look at the scoreboard and there's a lot of people that will break the scoring record (-16) by Sunday,' said Koch, who captured her first title at the LPGA Corning Classic last year. 'If it doesn't rain, the greens are going to firm up a little bit, which is going to make it a little more difficult. For me, it's still just hitting a lot of fairways and make sure I get a lot of chances.'
Kerr collected a pair of birdies at three and four before going on a birdie tear. She drained a pair of 12-footers at seven and eight before sinking a 60-foot birdie putt on No. 9.
Kerr kept the hot streak going around the turn. She knocked a 7-iron to seven feet to set up birdie at 10 and made it five birdies in a row with a 20-footer on the 11th.
Kerr, who turns 25 on Saturday, birdied two holes the rest of the way for a 63, one shot off Koch's course record.
'It could have a been 59 today, easily,' said Kerr. 'There were four or five more that I could have made, so I could have shot a 58. It could have been insane.'
Se Ri Pak, the 2001 champion, is alone in fifth place at 9-under-par 135.
Annika Sorenstam has her work cut out for her if she is to earn her 10th victory of 2002. She posted a 2-under 70 and is tied with Wendy Ward, who battled Sorenstam to a halve in their singles match at the Solheim Cup a few weeks back, and Janice Moodie. The trio is 8-under-par through two rounds.
Charlotta Sorenstam, Annika's younger sister, is tied with Laura Diaz and Meg Mallon for ninth place at minus 7.
Nancy Lopez, who is closing out her final full-time season on tour this week, stumbled in the second round. She carded a 3-over 75 and is tied for 25th place, 14 shots off the lead.
Full-field scores from the LPGA Tournament of Champions