MEXICO CITY Moderate and extreme poverty in Mexico dropped between 2000 and 2002, although it remains one of the country's principal challenges, according to a World Bank report released Wednesday.

Extreme poverty fell from 24.2 percent of the population in 2000 to 20.3 percent in 2002, which meant that 3.1 million Mexicans had left the ranks of those living on less than US$1 per day.

Those living in so-called "moderate" poverty, or on about US$10 a day, fell from 53.7 percent to 51.7 percent, according to the report, "Poverty in Mexico."

The summary is the third report the World Bank has conducted on poverty in Mexico, but the first the Mexican government has allowed to be publicized. The other two were completed in 1994 and 1999.

"The general situation on poverty in Mexico, somewhat surprisingly, has improved," World Bank President James Wolfensohn said in a videotaped message aired in Mexico City. "No one in the bank, and I believe no one in your government, is declaring a victory on the question of poverty."

The drop in poverty levels owes itself mainly to a closing of the salary gap between urban and rural areas, the efficient application of social government programs, and the large number of remittances sent by family members living outside the United States, the report said.

One of the report's authors, Michael Walton, noted that extreme poverty is most severe in rural areas, where 65 percent of the population lives on less than US$1 a day. He said that 20 percent of those who live in extreme poverty are Indians, who represent 10 percent of Mexico's 105 million people.

"It is very encouraging for my government that this investigation confirms extreme poverty has declined," said President Vicente Fox, who attended a public presentation of the report. "Poverty continues being our principal challenge and the highest priority."

Fox also added that Mexico is still "very far away" from a situation of economic equality: 44.3 percent of the country's income was concentrated in the hands of only 10 percent of Mexico's population in 2000, a figure that dropped to 41.3 percent by 2002.

Conversely, 10 percent of Mexico's income was shared among 40 percent of the population in 2000, a figure that rose to 11.2 percent of the country's income in 2002.

The World Bank also warned Wednesday that Mexico could face medium-range economic risks if its leaders fail to enact several institutional reforms, such as the fiscal and energy sector overhauls Fox has proposed.

The reforms have met with staunch resistance by opposition groups.

"What happens if there are no reforms?" asked Isabel Guerrero, World Bank director in Mexico and Colombia.

"The World Bank doesn't see any problem in macroeconomic terms, or in the markets either. But in the medium term, in two years, yes, we see that there could be problems."

She noted, for example, that currently high petroleum prices could fall in Mexico, which frequently uses surplus oil funds to cover its economic needs.