While gold, a safe-haven favorite, pared some gains, it was last up 1.2 percent, at around its highest since mid-June. The Nasdaq composite lost 76 points, or 1.2 percent, to 6,275.
Japanese markets were closed for a holiday, but the tense mood dragged Asian shares lower and an MSCI index of stocks across the globe was on track to post its largest weekly drop since the week before Donald Trump won the US presidential election in November.
Energy stocks also fell along with the price of crude oil.
However, an Associated Press report that the USA and North Korea have been engaged in back channel talks (https://apnews.com/686ac7c761694b28b67793a1d8297145?link=mktw) for several months even as they exchange incendiary threats helped to soothe some of the jitters.
The damage inflicted on world stocks this week by the escalating war of words over North Korea topped $1 trillion on Friday, as investors again took cover in the yen, the Swiss franc, gold and government bonds.
Just hours after US President Donald Trump told North Korea that any threat to the United States would be met with "fire and fury", a spokesman for the Korean People's Army said in a statement carried by the North's state-run KCNA news agency that it was considering a strike aimed at US military bases on Guam.
Nvidia's quarterly revenue in its data center and automotive businesses missed estimates, dragging the chipmaker's shares down 3.90 percent.
MARKETS OVERSEAS: In Europe, Germany's DAX was down 1.1 percent, while France's CAC 40 fell 1.4 percent.
Health care equipment and services company Henry Schein declined amid a broader slide by health care stocks. EIA reported that U.S. crude inventories fell last week as refineries boosted output to the highest percentage of capacity in 12 years.
Jose Mourinho hoping to continue second-season success record with Manchester United
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At the very least I think the last three days show that the market's character has changed from indifference to something more emotional.
The dollar index fell 0.39 percent, with the euro up 0.48 percent to $1.1827.
In a note to investors, Paul Christopher, head global market strategist, and Tracie McMillion, head of global asset allocation, suggest, "the threat of a nuclear weapon is certainly more serious than previous threats, but that threat also may increase the probability of a diplomatic solution".
U.S. producer prices unexpectedly recorded their biggest drop in almost a year, and the number of Americans filing for unemployment benefits unexpectedly rose last week. Britain's FTSE 100 was down 1.1 percent.
US gold futures for December delivery rose 0.8 percent to $1,272.00 per ounce.
In currency markets, the South Korean won was among the worst hit, falling 0.9% to 1,135.18 against the dollar as its Northern neighbour's tough talking intensified.
The dollar fell to 109.85 yen from 110.48 yen late Tuesday.
Elsewhere in commodities, the September crude contract advanced 20 cents to $49.76 per barrel and the September natural gas contract was up seven cents to $2.95 per mmBTU.