Pyongyang responded to provocations from President Trump and said it would consider using missiles against USA military bases in Guam.
The Standard & Poor's 500 index fell 24 points, or 0.9 percent, to 2,450.
The Korean won also continued to skid, down 0.45 percent to 1,147.2, falling below its 200-day moving average for the first time in a month.
With the tense mood pushing European shares down for a third day and Wall Street set to fall again, global stocks were on course for their worst week since Donald Trump won November's USA presidential election.
It was 0.2 percent lower at 1.1310 francs, compared with highs of 1.1537 francs hit a week ago.
Global stock markets ended their worst week in months amid rising tensions between the US and North Korea, though USA stock indexes steadied on Friday to close up slightly.
A Reuters Datastream index of more than 7,000 stocks across the globe saw its market capitalisation drop from a record high US$61.36 trillion on Monday to US$60.43 trillion at the close on Thursday. The VIX rose further on Wednesday, rising as far as 12.11, its highest in nearly a month.
"We assume markets will move on if it remains purely a war of words but the selloff looks durable", he added.
The euro dipped 0.1 percent to $1.1737 but the single European currency has been slipping this week against the dollar, having hit a more than 2 1/2-year high of $1.1892 on 2 August.
The yen is perceived as a safe haven because Japan is the world's biggest creditor country and investors there have tended to repatriate funds in times of crisis.
Australian shares were down 1.3 percent, set for a weekly loss of 0.6 percent and Chinese and Hong Kong bluechips lost 1.6 percent and 1.9 percent respectively.
A weaker-than-expected July consumer price data also supported the recovery. The Nasdaq lost 135 points, or 2.1 percent, to 6,216. The yield on the 10-year Treasury note slipped to 2.21 percent from 2.25 percent late Wednesday.
Disappointing US inflation and jobs data have not helped the dollar. The USD/JPY pair was trading at 110.072 Yen, up 0.13%. US -traded Nikkei futures fell 2 percent to their lowest since mid-May.
Gold held steady at two-month high with spot gold rising 0.1 percent to $1,287.83 per ounce, putting the precious metal on pace for its biggest weekly gains since April.
USA producer prices unexpectedly recorded their biggest drop in almost a year, and the number of Americans filing for unemployment benefits unexpectedly rose last week. Yesterday, the TICK opened at around 900-a reading of 1,000 or more means pretty severe selling pressure-and then headed higher throughout the day.
United States crude rose 0.41 per cent to US$48.79 per barrel and Brent was last at US$52.01, up 0.21 per cent.