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Federer crashes out to Croatian Karlovic
Ivo Karlovic celebrates after his shock defeat over world number one Roger Federer in Cincinnati.
Federer's latest setback, in a disappointing season which has seen him whin just two tournaments, means Nadal can top the rankings by winning the title on Sunday.
The Spaniard faces a third round match against Germany's Tommy Haas later on Thursday.
Meanwhile, third seed Novak Djokovic crushed Italian Andreas Seppi in straight sets to set up a quarterfinal clash with Latvian Ernests Gulbis.
Serbian Djokovic produced his best form of the tournament to beat Seppi 6-1 6-2, a day after defeating Simone Bolelli in two tie-breakers.
Teenager Gulbis reproduced his French Open form over American James Blake, sending the seventh seed down to a shock 6-4 1-6 6-3 defeat.
"I haven't played against many top 10 players in my career, so beating one of them gives me more confidence," said the world number 53, who still has still to win his first ATP title," said Gulbis.
"I know that he is a tougher opponent on hard court than he is on clay, so I was a little bit nervous, but as the match went on I played pretty well in the beginning, though I lost my concentration in the second set."
Djokovic, who won the Australian Open and a pair of spring ATP Masters Series titles, has gone off the boil in recent months as Nadal and Federer lift the tight rankings race for number one to a new level.
Meanwhile, Spain's Carlos Moya finished off a match interrupted in the second set by rain overnight, putting out Russian fourth seed Nikolay Davydenko 7-6 4-6 6-2.
