In a tweet, President Donald Trump warned of military action "should North Korea act unwisely", noting that the U.S.is "locked and loaded".
Tokyo's Nikkei index had dropped 1.3% by the time European stock markets opened on Wednesday morning, with similar falls on the German and French bourses.
"North Korea responding with a threat to US territory after Trump warned them not to threaten the USA was never going to go down well", Lawler said.
"Today's inflation data put the Fed on pause and really diminishes the fact that there's still some noise going around with the North Korea-U.S. situation", said Phil Blancato, CEO of Ladenburg Thalmann Asset Management.
The yen has also registered its biggest weekly gain since May against the dollar amid speculation that investors of Japan, as the biggest creditor nation, would repatriate their funds should a war break out.
Sally Pearson storms to 100m hurdles victory
After injury denied Pearson of the opportunity to defend her Olympic crown a year ago in Rio, she chose to coach herself. The American was second in 12.63secs, with Germany's Pamela Dutkiewcz claiming bronze in 12.72s.
The dollar index, which measures against a basket of currencies, fell 0.05 per cent.
President Donald Trump issued a new threat to North Korea, saying the US military was "locked and loaded" as Pyongyang accused him of driving the Korean peninsula to the brink of nuclear war.
In currencies, the yen strengthened 0.64 per cent versus the greenback at 109.37 per dollar.
Several financial sector companies also helped pull down the market, as did Macy's and other big department store chains, after the retailers reported disappointing quarterly results. The euro fell to $1.1735 from $1.1752. The 30-year bond was last up 4/32 in price to yield 2.7871 per cent, from 2.794 per cent late on Thursday.
Spot gold added 0.7 per cent to $1,285.70 an ounce. It was on course for an over 5 percent weekly rise, its highest such gain since July 2016.
Ongoing global glut concerns lingered in oil markets despite a bigger-than-expected draw in USA crude inventories, leaving prices volatile. Brent crude, used to price worldwide oils, was down 35 cents to $51.55 a barrel in London. Bullion traders said the gold prices headed north as rising tension between the two countries triggered safe-haven buying. Germany's DAX fared better, trading only 0.2 percent lower at 11,989.
The market also awaited U.S. consumer inflation data on Friday that would offer more clues about the pace of the U.S. Federal Reserve's monetary tightening.
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