The dollar rose against a trade-weighted basket of currencies on Thursday as investors consolidated positions with the low-yielding Swiss franc and Japanese yen supported amid deepending anxiety over tensions between the United States and North Korea.
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 pan-European FTSEurofirst 300 index lost 0.77 percent and MSCI's gauge of stocks across the globe shed 0.37 percent.
The euro eased 0.1 percent to $1.1766, staying below a high of around $1.1910 set last week, the euro's strongest level in 2-1/2 years.
The euro edged down 0.1 percent to $1.1735.
Emerging market stocks lost 1.08 percent.
ASIA'S DAY: Earlier, Asia bore the brunt of the mounting geopolitical uncertainty, with South Korea's Kospi index closing down 1.7 percent at 2,319.71 and Hong Kong's Hang Seng ending 2 percent lower at 26,883.51.
South Korea's won dropped 0.9 percent against the US dollar to its lowest close since July 13.
There were further tensions surrounding North Korea on Thursday with the Pyongyang regime claiming that missiles which could be used to target the Pacific island of Guam would be ready to launch by mid-August.
Although Japan could be in the front line of any clash with North Korea, the yen is benefitting because Japan is the world's biggest creditor nation and Japanese investors tend to repatriate funds in times of stress, attracting other flows.
Pan American Silver Corp, which reported second-quarter results late Wednesday, rallied 10.7 percent to C$22.47.
The Korean won fell more than 1 percent at one point and is now down 0.5 percent.
Yields on core government debt fell. The yield on the 10-year Treasury note held steady at 2.26 percent.
Meanwhile, traders absorbed a report on jobless claims (http://www.marketwatch.com/story/us-jobless-claims-rise-by-3000-to-244000-2017-08-10) that showed that initial claims for USA unemployment-insurance benefits continue to reflect a strong labor market, even as they inched slightly higher.
The decline in equity markets and a dip in USA bond yields triggered fresh demand for precious metals and gold pushed to fresh 2-month highs around $1,288.
Stocks ended more than one percent down in Seoul while the won slumped to a three-week low against the dollar as the USA president and South Korea's volatile neighbour dramatically ramped up their war of words.
Trump's comment pushed Wall Street lower, with only utilities making gains, and drove the VIX "fear gauge" of expected volatility on the S&P 500 to its highest in nearly a month.
Spot gold added 1 percent to $1,272.83 an ounce.
Across the Tasman Sea, New Zealand's S&P/NZX 50 added 0.2% to 7,799.64, led higher by local cargo giant Mainfreight, which was 1.8% firmer.
OIL: Benchmark U.S. crude lost 24 cents to $48.37 per barrel on the on the New York Mercantile Exchange while Brent crude, used to price global oils, declined 20 cents to $51.70 per barrel in London.