The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, popped almost 11 percent to 11.02. Mainland markets also traded below the flat line, with the Shanghai Composite slipping 0.18% and the Shenzhen Composite lower by 0.14%.
"Trump's response was aggressive and that's why the market turned lower", said Ken Polcari, a director at O'Neil Securities.
The market also awaited US consumer inflation data on Friday that would offer more clues about the pace of the US Federal Reserve's monetary tightening. The broad-based S&P 500 dropped 0.2 percent to 2474.92 points, and the Nasdaq dropped 0.2 percent to 6370.46 points.
In Europe, the Stoxx 600 Index finished the day with a decline of 1 percent from the previous close.
Trump had told North Korea to not "make any more threats" to the US or the country "will be met with fire and fury like the world has never seen". Simmering tensions between the USA and North Korea weighed on the market for the third day in a row.
He added, "I will tell you this, North Korea better get their act together or they're going to be in trouble like few nations ever have been in trouble in this world".
Commenting on the impact of the political sabre-rattling, Old Mutual Global Investors' Ned Naylor Leyland, responsible for gold and silver investing, said any further escalation could serve to drive the metals' price even further.
In currency markets, the Canadian dollar was trading at an average price of 78.71 cents USA, down 0.20 of a USA cent.
"It's awesome when you consider the headlines just how calm the equity markets are, how they've taken things in their stride", said Ryan Detrick, senior market strategist at LPL Financial in Charlotte, North Carolina. The producer-price index fell 0.1 percent last month, the first decrease in nearly a year.
The Dow Jones Industrial Average fell 94.55 points, or 0.43 percent, to 21,954.15, the S&P 500 lost 19.51 points, or 0.79 percent, to 2,454.51 and the Nasdaq Composite dropped 76.39 points, or 1.2 percent, to 6,275.94. USA gold futures for December delivery rose 0.2 percent to $1,291.80 per ounce.
"Risk aversion is once again the name of the game.as geopolitical tensions mount and investors head for cover in the traditional safe havens", said Oanda analyst Craig Erlam.
Benchmark 10-year notes last rose 5/32 in price to yield 2.2255 percent, from 2.242 percent late on Wednesday. US -traded Nikkei futures fell 2 percent to their lowest since mid-May.
Tokyo's Nikkei 225 share index closed down 1.3% at its lowest since June 1 as the strong yen hit exporters, while South Korea's KOSPI index fell 1.1% to seven-week lows.
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