(In Dec 17 item, corrects Michael Gault's attribution to Weiser Capital Management in paragraph 9)

NEW YORK - U.S. stocks continued to hover at near multiyear highs on Friday as traders tried to gauge how far markets can grind higher before taking profits on the current rally.

With traders and investors already nervous after the S&P 500 rallied over 5 percent so far this month, old concerns over European debt resurfaced with Moody's downgrade of Ireland's ratings hitting European bank shares in New York.

Some indicators are pointing to an overbought market such as high levels of bullishness, often seen as a contrarian indicator, as well as a high call to put ratio, indicating investors may be complacent about hedging a fall in prices.

The CBOE Volatility index <.VIX>, a measure of expected volatility on Wall Street, fell 10 percent and hit its lowest level since April.

The market is overbought and over bullish, we're in positive seasonal trends, there's still no real sellers, said Wayne Kaufman, chief market analyst at John Thomas Financial in New York. Some people may want to take those profits ahead of the end of the year.

Helping the Nasdaq, shares of both Oracle Corp and Research in Motion rallied a day after they posted strong quarterly results. Oracle also issued an upbeat forecast. Oracle gained 5 percent to $31.80 while U.S.-listed shares of RIM were up 2.4 percent to $60.65.

The Dow Jones industrial average <.DJI> dropped 3.90 points, or 0.03 percent, to 11,495.35. The Standard & Poor's 500 Index <.SPX> gained 2.20 points, or 0.18 percent, to 1,245.07. The Nasdaq Composite Index <.IXIC> gained 12.18 points, or 0.46 percent, to 2,649.49.

U.S.-listed shares of Banco Santander fell 2 percent to $10.53 while Barclays dropped 2.2 percent to $16.22. However, the impact on U.S. shares not directly linked to the Irish situation were limited.

There are more shoes to drop in Europe, but precedent has been set to help these countries. That's why equity markets aren't reacting significantly negatively to the news, said Michael Gault, a senior portfolio strategist at the New York-based Weiser Capital Management, which has about $150 million in assets under management.

Unless that support won't be there, I think investors will in general be able to shake off the news and find positives, like the tech results, he added.

Regional banks traded higher after Canada's Bank of Montreal agreed to buy Marshall & Ilsley Corp for $4.1 billion, sending the stock up nearly 18 percent to $6.81.

Peer regional bank KeyCorp climbed 4 percent to $8.41 while Regions Financial added 4 percent to $6.38.

The KBW Regional Banks index <.KRX> rose 0.7 percent and has risen more than 13 percent this year, including a gain of more than 12 percent in December alone despite continued debt woes from European banks.

Mergers and acquisitions are up for the first full year since 2007 and may mark the start of a new, multiyear M&A cycle, with emerging economies accounting for a bigger share of global dealmaking, according to Thomson Reuters data.

Market volume and volatility could increase later in the day as traders adjust or exercise derivative positions on four different types of expiring equity futures and options contracts, also know as quadruple witching.

(Reporting by Edward Krudy; Editing by Chizu Nomiyama)

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