A timely return to form by New Zealand opener Tom Latham hauled the Black Caps back into the second Test against Australia Saturday as they overhauled a 94-run deficit to lead by 40 at stumps.

Latham, dropped by Alex Carey on 59, was unbeaten on 65 in New Zealand's second innings at Christchurch's Hagley Oval exactly a year after his last half-century against Sri Lanka at the same ground.

Following the early dismissal of Will Young for one, Latham and Kane Williamson put on a partnership of 105 for the second wicket.

Williamson, celebrating his 100th Test, reached his half-century with a single off Mitchell Starc, but faced only two more balls before he edged a Pat Cummins delivery onto his middle stump.

At the close, New Zealand were 134 for two with Rachin Ravindra not out 11 alongside Latham.

Australia were all out midway through the day with Marnus Labuschagne's masterful 90 laying the foundation for their first innings 256 in reply to New Zealand's 162.

With the pitch becoming more benign than it was when 21 wickets fell in the first five sessions, Latham and Williamson produced a morale-boosting century stand for New Zealand, who had struggled against Australia's intimidating attack.

Australia have also had their batting issues, but Labuschagne found some form after a string of single-digit performances to anchor their innings.

Their second-highest scorer was paceman Mitchell Starc with 28 and behind Cameron Green's 25 was 23 from Pat Cummins.

Cummins's innings included some big blows, including three fours and a six off successive deliveries from Ben Sears.

The chief destroyer for New Zealand was Matt Henry, relishing the responsibility of taking the new ball with Trent Boult out of the picture and being rewarded with 7-67. Henry has taken 15 wickets so far in the series.

Australia resumed the day at 124-4. Labuschagne had an early issue with the umpires for standing too far out of his crease and potentially scuffing the wicket in the spinners' target area.

As he neared his century, New Zealand keeper Tom Blundell stood up to the wickets for pace bowler Tim Southee, tempting Labuschagne to hit out.

The ploy worked, as the Australian steered the ball to gully, where Glenn Phillips made an acrobatic catch.

Henry bagged nightwatchman Nathan Lyon for 20, caught at first slip by Daryl Mitchell, who had dropped him off Tim Southee at the start of the day.

Mitchell Marsh, who is also struggling for runs, went lbw to Henry without scoring for his second consecutive duck, facing just four balls.

Part-time bowler Phillips removed Alex Carey (14) when he paddled a simple catch to Tom Latham at mid-wicket, leaving Henry to mop up the tail.