Tension grew after U.S. president Donald Trump refused to step back from his threat to hit North Korea "with fire and fury" or rule out a pre-emptive strike on the rogue nation if it continued to threaten the United States.
In European markets, the French CAC 40 was down 0.7% and Frankfurt's DAX 30 shed 1.2%. They outweighed gains in health care stocks and elsewhere.
The Swiss franc was on pace for its biggest single-day rise against the euro since the Swiss National Bank removed its cap on the currency in January 2015.
Ten out of the 11 major S&P 500 sectors ended lower after the comments with the only gains seen in the utilities sector, which is seen as a bond proxy because of its slow but predictable growth and dividends.
"Obviously we are looking at the increased tensions between the USA and North Korea", said Brad Bechtel, managing director FX at Jefferies in NY. "As long as it doesn't go beyond just a war of words, this is going to be short-lived". On Wall Street, the future for the Standard & Poor's 500 index fell 0.4 per cent and that for the Dow Jones industrial average lost 0.1 per cent. The Nasdaq composite lost 18 points, or 0.3 per cent, to 6,352. The index - which last week hit 22,000 for the first time - closed at 21,844.
The index was down 1.44% or 108.12 points to close at 7389.94 on Thursday in its worst performance for four months. All the indexes are down for the week.
Investors opted for the perceived safety of US Treasuries, which pushed the yield on the 10-year note three basis points lower to 2.21 percent.
Financial markets tumbled for a third straight day, as disappointing earnings and an exchange of threats between North Korea and the US pushed investors out of stocks.
On Tuesday, President Donald Trump warned North Korea of "fire and fury" in response to recent threats from Pyongyang, which said it was examining plans for attacking Guam, a USA territory in the Pacific with a military base. USA intelligence officials believe North Korea has the ability to fit a nuclear weapon inside a missile. That's the biggest increase since May.
The yen gained around 0.2 per cent in Asian time as investors took their money out of higher-yielding currency plays following another warning from President Donald Trump to Pyongyang.
That prompted North Korea to say it was considering firing missiles near Guam, a US Pacific island territory. "I don't see it as a fear-driven sell-off". Watch maker Fossil Group plunged 25 per cent after reporting a weak quarter. Of those, 52 percent delivered earnings and revenue that beat financial analysts' forecasts, according to S&P Global Market Intelligence.
Investors retreated from several of this year's winners on Thursday, including shares of large US technology companies and biotechnology firms. The Shanghai Composite slipped 1.1 percent to 3,240.69.
Interim results from FTSE 100 listed drinks bottler Coca Cola Hellenic lifted its shares as they came in comfortably ahead of market expectations.