--Investors seek 'safe haven' assets ahead of EU summit --Greece's membership in the euro zone back in focus --Euro hits August 2010 low against the dollar By Nina Bains and Ishaq Siddiqi Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Core European sovereign paper was in keen demand as investors sought 'safe haven' plays Wednesday, while stocks and the euro tumbled amid concerns over the viability of the euro zone ahead of the European Union summit. Results from the latest German two-year auction highlighted investors' flight to safety, as the country's borrowing costs hit a record low after launching its first government bond in history offering no scheduled interest payments. "This is Germany's first zero coupon two-year issue which, in itself, clearly reflects the now familiar crisis-induced trend of investors favoring a return of their money over a return on their money," said Rabobank. Germany sold EUR4.555 billion of the 0% June 2014 treasury note, better known as Schatz. Its EUR5 billion offer attracted EUR7.744 billion in bids, allowing the auction to be strongly covered. The average yield came in at 0.07%, representing the lowest German funding cost in this maturity segment on record. And it wasn't only German paper in demand, as other core European countries saw their yields drop sharply--the 10-year Finnish bond yield fell to a record low of 1.73%, the 10-year Dutch yield did the same to 1.89%, as did the 10-year U.K. gilt to 1.788%. At 1105 GMT, the June Bund contract stood at 143.85, up 0.76, with the 10-year yielding 1.41%. The June gilt contract traded at 119.32, up 0.93, after hitting a new contract high at 119.48, and the 10-year paper yielded 1.79%. The single currency also suffered, with the euro falling to its lowest level against the U.S. dollar since August 2010, hitting $1.2615. At 1110 GMT, the euro stood at $1.2661. In equity markets, the benchmark Stoxx Europe 600 index was down 1.7% at 240.63. The U.K.'s FTSE 100 index was 1.9% lower at 5302.19, Germany's DAX was down 1.8% at 6322.29 and France's CAC-40 was 2.2% lower at 3077.77. Pressure on EU leaders ratcheted higher as Greece's fate as a member of the euro zone moved very much back in focus following comments from former Greek Prime Minister Lucas Papademos late Tuesday. He said the risk of Greece leaving the euro was real and that preparations were being made for a euro exit, suggesting there is only limited room for the country to negotiate its loan program. Though he later watered down his comments, sentiment had already been hit hard. Adding to the downbeat tone were reports that the European Central Bank has set up a working group on Greece to prepare for a possible escalation of the country's debt crisis. And hopes of the EU Summit Wednesday coming up with any concrete proposals appear slim. "Differences between France and Germany on the topics of euro-zone bonds and growth versus austerity have led markets to believe nothing substantial will emerge," stated Brown Brothers Harriman. EU leaders are likely to reinforce the points that some of them have been making individually over recent days and weeks, that "there is no fundamental alternative to the troika programme and it is up to Greece whether or not it wants to stay in the euro zone," said UBS. Still, "as long as there is willingness on the Greek side to fundamentally adhere to the deal, rather than wanting to 'cancel' it, then there will likely be some flexibility." Elsewhere, in commodities markets, spot gold was at $1559.60 a troy ounce, down $5.70 from levels late in New York trading, while the July Nymex crude oil futures contract was down 81 cents at $91.05 a barrel and the July Brent contract was down $1.26 at $107.15. -By Nina Bains, Dow Jones Newswires; +44-20-7842-9282; nina.bains@dowjones.com

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