Wagner bounces Smith out shy of century

New Zealand snared the vital wicket of batting maestro Steve Smith for 85 Friday to haul themselves back into contention at lunch on day two of the second Test against Australia.

Smith looked set for a 27th Test century and his fifth in as many Tests at the Melbourne Cricket Ground before a Neil Wagner bouncer ended his patient 242-ball knock.

It was an important breakthrough for New Zealand's tireless and consistent bowlers, who kept the run rate down but were struggling for wickets.

It left the match finely poised with Australia 336 for five at the break with Travis Head not out 57 and skipper Tim Paine on 33.

The visitors need to win to square the three-match series after crashing in the opening day-night clash in Perth by 296 runs.

Australia resumed at 257 for four with Smith on 77 and Head not out 25 under clear skies on a hot day.

It was slow going as pace spearheads Trent Boult, Tim Southee and Wagner kept them in check, with Smith adding just eight runs to his overnight score in more than an hour before he was out.

Wagner had been peppering the batsmen with short balls and one ballooned off Smith's bat handle and glove with Henry Nicholls taking a fine one-handed catch at gully.

While Smith was deprived of another ton, it marked a return to form for a player who, uncharacteristically, had gone five innings without a 50.

At the other Head, also searching for a big score after a lean spell, displayed patience and occasional flair as he targets only his second Test century.

He reached his eighth Test 50 from 109 balls with a drive off Colin de Grandhomme.

The Black Caps are playing their first Boxing Day Test in Melbourne since 1987, with skipper Kane Williamson winning the toss and opting to bowl.

It was a bold decision on a pitch that has traditionally been docile and favoured the batsmen, although his bowlers have found plenty of swing and bounce so far.