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Australia's remarkable Ashes fightback left England staring at a first innings total of 527 for seven on Friday, and the loss of two late wickets on day two of the third Test made the task look even more imposing.
England captain Alastair Cook was unbeaten on 36.
The in-form Peter Siddle bagged the wickets of Joe Root and Tim Bresnan.
Australia captain Michael Clarke scored 187, his highest Test score against England, as the tourists maintained their grip on the Test.
He declared on 527 for seven after tea in a match they have to win to stand any chance of regaining the Ashes after falling 2-0 behind in the five-match series.
England struck early on Day 2, after Australia resumed at the overnight score of 303 for 3.
Steve Smith, who batted dourly on Day 1, gave away his wicket for 89 when he skied a top-edged sweep to Jonny Bairstow in spinner Graeme Swann's first over of the day.
David Warner, who came in at the fall of Smith’s wicket, was widely booed and taunted from the packed stands at Old Trafford as he walked to the crease. He had punched England's Joe Root in a Birmingham bar during June's Champions Trophy, leading to a ban from the Australia side.
The aggressive left-hander, drafted back in for this Test, was initially watchful but got a thick edge on five off Swann, the ball hitting wicketkeeper Matt Prior's knee and bouncing up for slip Jonathan Trott to take the catch.
Warner conferred with Clarke and decided to review, but replays showed a clear nick and there was nothing wrong with the catch. The jubilant crowd waved Warner back to the dressing room with glee.
Graeme Swann dismissed Peter Siddle to finish the innings with five wickets for 159.
England captain Alastair Cook was unbeaten on 36 and Jonathan Trott on two after Lord's centurion Joe Root edged in-form quick Siddle behind for eight from 57 deliveries and nightwatchman Tim Bresnan (1) did the same.