"Obviously we are looking at the increased tensions between the USA and North Korea", said Brad Bechtel, managing director FX at Jefferies in NY.
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. "Safe havens are bid and markets are a little uneasy".
Investors, who took the North Korea report from Japan in their stride earlier in the day, lost their appetite for risk after Trump's comments to reporters during his vacation at his golf club in New Jersey.
Stocks ended more than one percent down in Seoul while the won slumped to a three-week low against the dollar as the U.S. president and South Korea's volatile neighbour dramatically ramped up their war of words.
The pan-European FTSEurofirst 300 index lost 0.77 percent and MSCI's gauge of stocks across the globe shed 0.37 percent.
The influential financial stocks were among the biggest drags on the index, with Royal Bank of Canada down 1.5 percent to C$92.88, and Manulife Financial Corp falling 4.7 percent to C$24.43, its largest drop since early August a year ago.
The North's threat came hours after U.S. President Donald Trump warned that any threat by North Korea to the U.S. will be met with "fire and fury".
The broad-based S&P 500 dipped to 2,474.92, and the tech-rich Nasdaq Composite Index dropped to 6,370.46. The Dow slid 33.08 points, or 0.2 percent, to 22,085.34.
Redskins linebacker Trent Murphy to miss season with knee injury
The grim diagnosis wipes out a 2017 campaign that was already going to be capped at 12 regular-season games. He transferred to Louisville once it was announced that UAB's football program would be shutting down.
"Japanese equities hadn't been rising much despite positive earnings results, so investors had started jumping at shadows, doubting whether they should really be holdings onto Japanese stocks". The yield on three-year Treasurys rose 2.8 basis points to 1.833 percent and the return on benchmark five-year government bonds gained 3.2 basis points to 2.038 percent.
Shares of Manulife, which reported better-than-expected results, fell after the company played down talk of a John Hancock spin-off.
Shares of Michael Kors KORS.N ended up 21.5 percent, after the luxury goods maker raised its full-year revenue forecast. Brent crude, used to price worldwide oils, declined 23 cents to $51.67 per barrel in London. TMX Group Ltd was up 3.2 percent to C$68.02, while Quebecor Inc added 4.3 percent to C$45.20 and Canadian Tire Corp Ltd climbed 5.7 percent to C$149.89.
In Europe, Germany's DAX rose 0.3 percent, while France's CAC 40 added 0.2 percent. The strength in the sector comes as gold for December delivery is jumping $11.30 to $1,290.60 an ounce.
In Asia, markets were mostly lower after disappointing Chinese trade data.
The Korean won fell more than 1 percent at one point and is now down 0.5 percent.
Asian markets finished lower on Thursday (http://www.marketwatch.com/story/asian-markets-continue-to-fall-after-wednesdays-selloff-2017-08-09), with losses of over 1% for the Hong Kong Hang Seng Index.