Elaine,

I am a fifth grade elementary teacher, but I have an early childhood
background (and have taught second grade)...Here are my thoughts...

My gut reaction is definitely NOT to hold her back.  Study after study
says this DOESN'T work.  It would crush her self esteem.

If she is really only a half-year behind (as you said she is reading at
a mid-second level) she should be fine in the third grade class.  There
will be lots of "regular" kids who start school at that level.  But, to
make her successful, I would get a tutor to fill in skill/vocab. gaps
that she may have because she wouldn't have done the second grade
instruction and I would READ, READ, READ.  Read with her, to her, let
her read alone...TALK about books, write about books, write books of her
own...All these activities will keep what she already knows fresh in her
mind and give her a strong foundation on which to begin.

Also, something to ask...do they have reading specialists in your school
that either pull kids for remedial help or work within the classroom?
If so, then if she does struggle, she could get help from that person in
addition to the teacher or a private tutor.

Feel free to e-mail me privately if you want to chat more.  I'd be glad
to help.

Linda