President Trump took aim at North Korea again on Thursday, saying that his earlier threat to unleash "fire and fury" may not have gone far enough.
July's 0.1 percent increase in consumer prices suggests that the Federal Reserve may be less likely to raise interest rates next month.
The Dow and S&P 500 inched higher on the day but they both posted their largest weekly percentage drops since late March.
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.
But although USA equities on Wednesday managed to close only slightly down even after Trump's warning that "fire and fury" would rain on North Korea, on Thursday the chickens came home to roost on Wall Street.
Shares of Kohl's were down 8.4%, while Macy's fell 4% after the department store operators reported a fall in sales. Hong Kong's Hang Seng dipped 1.1 percent to 27,444.00. "This is mainly due to the fact that in the event of a crisis involving the United States directly, investors are more likely to seek refuge in an asset like gold which bears no country risk and also benefits when the dollar depreciates", Gambarini writes.
MARKETS OVERSEAS: In Europe, Germany's DAX was down 1.1 percent, while France's CAC 40 fell 1.4 percent.
Stock futures were trading lower on Friday, Aug. 11, as concerns over North Korea and President Donald Trump kept global markets on edge.
The bigger surprise is that the cost to protect against declines in the kiwi against the USA dollar for one month shot up to the most expensive levels since April.
The heightened rhetoric dragged London's top flight back from 7,542.73 on Tuesday, when it came within a whisker of reaching the all-time closing high of 7547.63 recorded on May 26 and June 2.
Currency traders consolidated positions in the Japanese yen and Swiss franc, and nudged up the dollar index by unwinding some of the recent big bets on the euro.
Also underpinning a move higher in the precious metal, was data showing a continued slowdown in the pace of inflation as consumer prices rose less than expected in July.
It stood 0.16 percent down on the day at 109.03 yen per dollar by 1047 GMT. It is trading at its best level in two months, and is threatening to crack the $US1,300 level for the first time since the day following the USA presidential election. "There are four more (inflation) prints between now and the December FOMC meeting and we expect the Fed to remain data-dependent, if a touch more cautious", TD Securities said in a note. Netflix also fell, giving up $3.19, or 1.8 percent, to $175.17.
And in a textbook-type cross-asset move toward safety in times of trouble, the Japanese yen hit an eight-week high against the USA dollar while spot gold also reached a two-month high.
The Korean story has seen the yen gain around 1.5 percent this week, its biggest rise since mid-May. Brent crude, used to price worldwide oils, gained 16 cents to $52.30 in London.
USA crude oil futures settled almost 2 percent lower at $48.59 a barrel, as Russian Federation considered a future output resumption and the Organization of the Petroleum Exporting Countries boosted its July production numbers.