European shares fall on recession woes; Ahold gains

* FTSEurofirst 300 down 2.7 pct but off 5-1/2-year low

* Recession fears hit financial and raw material stocks

* Ahold impresses with higher than expected quarterly profit

By Peter Starck

FRANKFURT, Nov 20 (Reuters) - European stocks fell on Thursday as fears of the impact of a recession hammered shares in banks and raw material producers, but supermarket group Ahold (AHLN.AS) rallied on a higher than expected quarterly profit.

By 1240 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was down 2.7 percent at 790.05 points, having touched a 5-1/2-year low of 782.67 points.

The slide echoed weakness in U.S. and Asian equity markets.

"The mood among investors continues to be marked by an extreme risk aversion," said Markus Reinwand, equity strategist at German bank Helaba.

European banks lost ground after Citigroup's (C.N) shares tumbled 23 percent to a 13-year low overnight as investors questioned the U.S. bank's survival prospects.

On Thursday, however, Citigroup rose 6.3 percent before the bell after CNBC reported that Saudi Prince Alwaleed plans to boost his stake back to 5 percent.

In Europe, Credit Suisse (CSGN.VX) fell 8.4 percent, Dutch financial group ING (ING.AS) lost 7.1 percent, Germany's Deutsche Bank (DBKGn.DE) dropped 6.7 percent and Spain's Banco Santander (SAN.MC) traded 6.6 percent lower.

But Royal Bank of Scotland (RBS.L) swam against the tide, rising almost 13 percent ahead of a shareholder meeting to approve a fundraising plan. "It's positive sentiment ahead of the vote and the market expects a good outcome," a trader said.

Insurers also fell, tracking a 10-percent-plus drop overnight for U.S. peers on the Dow Jones sector index. Britain's Aviva (AV.L) lost 12.9 percent, French AXA (AXAF.PA) lost 5.1 percent and Swiss Life (SLHN.VX) dropped 6.4 percent.

All but two of the 38 industry groups in the FTSEurofirst 300 index were in the red at 1220 GMT, with analysts pointing to worries about a global economic downturn.

That was a key reason behind a surprise 100 basis point cut in the Swiss National Bank's interest rates, which took the target range for the 3-month Swiss franc LIBOR to 0.50-1.50 percent.