The latest rhetorical escalation comes after North Korean state media reported that the country's military leaders were working on a proposal to launch four intermediate-range missiles into the sea less than 25 miles off Guam's coast.
"If the data continues to come in on the softer side, the market might start to price the Fed staying on hold this year", said Sireen Harajli, FX strategist at Mizuho in NY.
London's benchmark FTSE 100 index fell back 1.3 percent, driven by losses in the commodity sector.
The CBOE Volatility Index - a measure of investors' expectations for swings in the S&P 500 over the next 30 days - surged 44% Thursday, to 16.04 - its highest level since U.S. Election Day.
Bond prices were little changed. Hence the relatively small 7 bp fall in UST 10 year yield, and the restrained increase in the price of gold.
"Trump's response was aggressive and that's why the (stock) market turned lower", said Ken Polcari, director of the NYSE floor division at O'Neil Securities. The slide deepened after Trump's remarks on North Korea aired.
The sabre-rattling - sparked when President Donald Trump stunned the world with an apocalyptic warning to unleash "fire and fury" on North Korea - continued Thursday as Pyongyang mocked the United States leader as "bereft of reason".
Wall Street indices opened modestly higher later on Friday as U.S. investors looked for an end to the three-day losing streak.
Beyond geopolitical concerns, investors continued to size up company earnings reports.
Focusing on United Kingdom stocks, Old Mutual was among the biggest fallers after saying it was taking a "cautious" approach to the dividend despite hiking half-year profits.
Biotechnology, tobacco, and transportation stocks also saw considerable strength, while steel stocks extended a recent move to the downside.
In other corporate results, a number of companies reported forecast-beating numbers.
US stock benchmarks were setting up for more losses Friday, with the S&P 500 facing its worst weekly performance since November, as U.S.
Dillard's DDS.N slumped 13 percent.
The Canadian dollar was trading at an average price of 78.67 cents USA, down 0.04 of a US cent. Heating oil fell 1 cent to $1.63 a gallon. Rival Advanced Micro Devices was also down 2.6 percent.
USA crude oil tumbled 2% to $48.59/bbl, failing to hold above $50 as a report from OPEC showed crude production among the group's members rose in July. Crude briefly pared losses in late trading after US inventories fell more than expected last week. Germany's DAX fared better, trading only 0.2 percent lower at 11,989.
Emerging market stocks lost 1.28 percent.
Asian markets fell sharply, with Hong Kong's Hang Seng index dropping 2%, while U.S. stocks had ended lower on Thursday.
South Korea's KOSPI fell 1.7 per cent on Friday to its lowest since May 24, but its losses for the week were a relatively modest 3.2 per cent. Hong Kong's Hang Seng added 0.6 percent.
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