The S&P clung to a two-year high on Friday as investors predicted a pause as volumes are expected to dry up in the days ahead, and after a 5 percent gain already so far in December.

The last two weeks of the year are traditionally quiet, and therefore market moves are less meaningful to the overall trend, which took the S&P 500 to a two-year high early this week.

Some indicators imply investors have grown complacent. The CBOE Volatility index <.VIX>, a measure of expected volatility on Wall Street, fell to its lowest level since April, dropping 7.4 percent to 16.11.

The bullish camp is -- I'm sure -- very pleased at the day-after-day, slow steady increase they are engineering, said Larry McMillan, president of options research firm McMillan Analysis in a research note. But below the surface, tensions are building, and they will likely explode to the downside in a sharp, but perhaps only short-lived, correction.

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.

Some of the year's biggest winners have endured selling of late and were down again Friday. Apple Inc fell 0.2 percent to $320.61, while Salesforce fell 0.7 percent to $136.50.

This was offset on the Nasdaq by gains in both Oracle Corp and Research in Motion a day after they posted strong quarterly results. Oracle gained 3.9 percent to $31.46 while U.S.-listed shares of RIM were up 1.6 percent to $60.20.

The Dow Jones industrial average <.DJI> dropped 7.34 points, or 0.06 percent, to 11,491.91. The Standard & Poor's 500 Index <.SPX> gained 1.03 points, or 0.08 percent, to 1,243.90. The Nasdaq Composite Index <.IXIC> rose 5.66 points, or 0.21 percent, to 2,642.97.

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

U.S.-listed shares of Banco Santander fell 2 percent to $10.52 while Royal Bank of Scotland dropped 5.5 percent to $11.90. 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 Markets, 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 18 percent to $6.85.

Peer regional bank KeyCorp climbed 4.1 percent to $8.42 while Regions Financial added 1.8 percent to $6.24.

The KBW Regional Banks index <.KRX> rose 0.3 percent and has risen more than 11 percent this year, with most of that coming 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, according to Thomson Reuters data.

About 8.9 billion shares were traded on the New York Stock Exchange, the American Stock Exchange and the Nasdaq, over the year's daily average of 8.5 billion.

Volume was increased by traders adjusting or exercising derivative positions on four different types of expiring equity futures and options contracts, also know as quadruple witching.

(Reporting by Edward Krudy; Additional reporting by Doris Frankel; Editing by Chizu Nomiyama)