The broad-based S&P 500 was hit even harder, dropping 1.5 percent to close at 2,438.22, while the tech-rich Nasdaq Composite Index lost 2.2 percent 6,216.87. It is now on track for its biggest weekly drop since the week before the November 8 USA presidential election.
Traders took heart in a measure of USA consumer prices that increased only slightly in July, pointing to benign inflation that could make the Federal Reserve cautious about raising interest rates again this year.
Shares of Michael Kors (KORS.N) jumped 22.3 percent, helping to boost the consumer discretionary index.SPLRCD, after the luxury goods maker raised its full-year revenue forecast.
A Chinese state-run newspaper said on Friday that China should make clear that it will stay neutral if North Korea launches an attack that threatens the United States, but that if the US attacks first and tries to overthrow North Korea's government, China will prevent it doing so. While the U.K.'s FTSE 100 Index has slumped by 1.5 percent, the German DAX Index is down by 1.1 percent and the French CAC 40 Index is down by 0.8 percent. The precious metal is often seen as a safe haven for investors during times of uncertainty.
North Korea claimed "only absolute force" can work on someone as "bereft of reason" as Trump and detailed plans to fire a salvo of missiles into waters around the U.S. Pacific territory of Guam.
Hope that the Fed will have to slow its rate hike path appeared to stop, at least for now, the near $1-trillion loss in world stocks valuations this week triggered by the war of words between Pyongyang and the United States.
Trump, whose threat this week to bring "fire and fury" was dismissed by North Korea, said Thursday that statement might not have been "tough enough".
Barrick Gold Corp rose 2.1 percent to C$21.7, while Goldcorp Inc rose 0.9 percent to C$16.29.
Beijing accuses Tokyo of meddling in South China Sea issue
Presidential Spokesman Ernesto Abella said: "We're not the spokesman for the Chinese ... we state our own position". China has urged the United States to respect its sovereignty and security interests in South China Sea.
The news was also greeted with dismay by traders in Asia, with Tokyo down 1.3 percent, Hong Kong losing 0.4 percent and Seoul registering a 1.1-percent decline.
Away from the geopolitical drama, US inflation data is due at 1330 GMT.
Biotechnology stocks are turning in some of the market's worst performances in morning trading, resulting in a 1.6 percent drop by the NYSE Arca Biotechnology Index.
The 30-year bond last /32 in price to yield 2.7933 percent, from 2.794 percent late on Thursday.
After a dip of as much as 0.52 percent earlier in the day, Wall Street's three major indexes bounced off intraday lows.
Small-company stocks fell more than the rest of the market Wednesday.
The Dow is up 2,081.41 points, or 10.5 percent.
US crude was down 0.9 percent at $48.16 per barrel, on track for a weekly loss of 2.9 percent. The tension increased the selling pressure in the market. USA gold futures gained 0.26 percent to $1,293.50 an ounce.
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