Actually, "am reading" is present progressive. "Was reading" is past progressive. Your suggested change to simple past would give us about the same meaning.
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AvangiThe progressive tenses don't relate one action in time to another. They simply stress the continuing nature of the action. It's just a little warmer feeling.
Anonymous I was reading a gloomy economic prognosis in the paper this morning.I'm not so sure about that. We don't have the entire conversation up to this point. Nor do we know what the speaker has in mind to say next.
Reading is not the background action