Stocks were set to extend what has been its worst succession of down days since April, until inflation data was released.
US President Donald Trump issued a new threat to North Korea, saying American weapons were "locked and loaded" as Pyongyang accused him of driving the Korean Peninsula to the brink of nuclear war. However, the 4-week average figure dropped by 1,000 to 241,000.
Ryu Yong-seok, a market analyst at KB Securities Co., said tensions between North Korea and the United States are a negative factor in the local stock markets that could drag down the index. Britain's FTSE 100 sank 0.7 percent to 7,447.21. For the week, the index lost 1.5 percent.
MARKETS OVERSEAS: Major indexes in Europe slumped. The bigger surprise is that the cost to protect against declines in the kiwi against the United States dollar for one month shot up to the most expensive levels since April. Hong Kong's Hang Seng Index fell 1.22%.
Many world stock markets have hit record or multiyear highs in recent weeks, leaving them vulnerable to a sell-off, and the tensions over North Korea proved to be the trigger. The remarks, following North Korea's earlier revelation of a plan to launch a salvo of ballistic missiles toward the U.S. Pacific territory of Guam, gave investors further incentive to take to the sidelines at least in stock markets.
Japan is the world's biggest creditor country and there is an assumption investors there will repatriate funds in a crisis.
Trump not ruling out military action to settle Venezuela crisis
Venezuelan leader expresses willingness to hold talks with the United States president on the heels of a new wave of sanctions. Maduro said Thursday he had ordered his foreign minister to arrange a private meeting or a phone conversation with Trump.
The pan-European STOXX 600 was down 0.7% at closing, France's CAC 40 fell 1.4% after a vehicle hit a group of soldiers in Paris in what is thought to have been a deliberate act, and a fall in bond yields saw Germany's DAX down 1.1%.
Investors will keenly watch appearances later on Friday by Dallas Fed boss Robert Kaplan and Minneapolis Fed President Neel Kashkari for clues on inflation and the future path of rate hikes.
"It reinforces market concerns that inflation is perhaps just not picking up in the way the Fed had been expecting", said Osborne.
Rising costs for housing, medical care and food helped push the Consumer Price Index (CPI) up 0.1 percent in July, seasonally adjusted, after no change in June and a 0.1 decrease in May, the US Labor Department said. The next possible support for the euro-franc pair is seen around the 1.10 mark.
"That did temporarily shake investors' complacency, but we think markets are ready to move higher in the back half of the year, and earnings and economic data are going to drive that".
Bond prices rose. The yield on the 10-year Treasury note slipped to 2.20 percent from 2.25 percent late Wednesday.