Loeb won three of Friday's nine stages

Gronholm feared his title hopes were over after plunging his Peugeot into a ditch.

Citroen's Loeb won three and tied another of Friday's nine stages to lead Subaru's Norwegian Petter Solberg by 3.9 seconds.

Britain's championship leader Richard Burns was third overall in a Peugeot, 39.1 seconds behind, with Finland's Tommi Makinen fourth for Subaru.

Gronholm had led by 16 seconds after the first seven stages before disaster struck.

The flying Finn blew his chances of a fourth Australian title when he slid into a ditch coming out of a hairpin on the eighth stage.

It is not good for the championship - maybe we have lost it Marcus Gronholm

The car was not badly damaged but he spent 16 minutes getting it back on the road and did not take part in the day's closing super-special.

"It was very stupid, I am so annoyed," Gronholm said.

"I have never done anything like this before. It is not good for the championship. Maybe we have lost it. I think so."

Gronholm won the first two stages of the day but Loeb began to close the gap when he took the fifth and sixth stages in the forests around Perth.

Loeb took over at the front when he and Solberg dead-heated on the eighth stage and then stretched his lead by winning the penultimate stage of the day.

Belgian Francois Duval won the 2.45 km super-special for Ford.

"The car is going very well and I have a good feeling," said Loeb, who won this year's Monte Carlo and Germany rallies to reach fourth place in the championship.

"We have a big fight with Petter now, so we will try to push as much as possible and to stay on the road. I think I am able to win the rally but it will be difficult.

"There are still two long days and Petter is pushing hard."

Burns, who was disadvantaged by having to go out first in each stage on the slippery gravel tracks, said he was hoping to cut into Loeb's advantage over the weekend.

The Englishman has not won a race all season but leads the championship by five points.

Rally Australia is the 10th round of the 14-race world championship.

Standings at the end of day two: