* Deal will make Jumbo second only to market leader
* Supermarket price war seen likely
* 7.5 billion euros turnover for combined group
* C1000 valued at 900 million euros
* Ahold shares down 0.79 pct; Amsterdam index up 2.9 pct (Adds value, detail)
By Sara Webb and Mark Potter
AMSTERDAM/LONDON, Nov 24 Dutch grocer Jumbo is to buy rival C1000 from CVC to become the clear number two in the sector and step up competition to Ahold's market-leading Albert Heijn chain.
Jumbo is to pay 900 million euros, including debt, for C1000 to create a supermarket chain with a 23 percent market share, nipping at the heels of Albert Heijn which has one third of the high-margin Dutch market, and is likely to set off a supermarket price war.
"The emergence of a strong number two is the least preferred scenario for Ahold as Jumbo is Ahold's toughest competitor," said Rabobank in a research note.
"The overlap between Albert Heijn and C1000 is substantial. In time, Albert Heijn's relative price position might deteriorate."
Private equity firm CVC had been hoping C1000 would fetch 900 million to 1 billion euros, people familiar with the deal told Reuters on Wednesday.
Privately-owned Jumbo has driven consolidation in the Dutch market. Two years ago it boosted its market share with the acquisition of another rival, Super de Boer; now, with the purchase of C1000, the combined group will have a total of 725 stores and turnover of 7.5 billion euros.
Jumbo's chief executive, Frits van Eerd, told a press conference on Thursday the group did not aim to overtake Albert Heijn's market share, and ruled out a stock market listing for the family-owned business.
Ahold's Albert Heijn targets higher-end shoppers and has increased its market share in the Netherlands even as lower-cost rivals including Jumbo and C1000 have become more popular, particularly at a time of government austerity measures, an anaemic economy, and rising unemployment.
Earlier this week Ahold, which makes about 60 percent of its sales in the United States, announced plans to expand online services as well as to open new shops and convenience stores in the Netherlands, Germany and Belgium.
"Greater scale for Jumbo poses a material risk to Ahold's margins in the country, we believe," said Bank of America-Merrill Lynch analysts.
However, RBS analyst Justin Scarborough was not concerned, and Ahold shares were down less than one percent on the news, to trade at around 9.14 euros.
"Albert Heijn is a great retailer, with great locations, with the best private label offering in the Netherlands and pretty competitive pricing, and that isn't going to change overnight," Scarborough said.
He has a "buy" recommendation on Ahold shares with an 11.8 euro price target.
(Additional reporting by Anna Ferschtman and Roberta Cowan in Amsterdam; Editing by Mike Nesbit and Jane Merriman)