Just hours before North Korea's warning, US President Donald Trump warned Pyongyang that if it continued to threaten Washington, the Communist nation would face "fire and fury" the world has never seen.
All the 11 major S&P indexed were lower, with technology sector's 0.62 percent leading the decliners.
Chinese stocks seemed little affected though, and Australian stocks rose Wednesday after a weaker Tuesday amid strong earnings reports from big banks.
In Europe, the Stoxx 600 Index finished the day with a decline of 1 percent from the previous close.
Trump, whose threat this week to bring "fire and fury" was dismissed by North Korea, said Thursday his statement might not have been "tough enough". "What we're seeing today is political tensions over North Korea and the United States. making people nervous", said Robert Pavlik, chief market strategist at Boston Private Wealth in NY.
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"Gold, one of the first ports of call in times of investor anxiety, is now trading 0.56% higher at US$1268/oz", he said.
The yen held steady against the dollar, taking a breather after having risen on Wednesday to its highest level in almost eight weeks.
Against the tense backdrop, the South Korean won extended its losses on Thursday and touched its lowest level against the dollar in about a month.
"Investors rushed to buy the yen as a safe-haven currency after geopolitical risks increased sharply in response to a bitter war of words between the United States and North Korea", an official of a foreign exchange brokerage house said.
The Nasdaq composite slipped 0.21 percent.
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The Dow Jones Industrial Average fell 94.55 points, or 0.43 percent, to 21,954.15, the S&P 500 lost 19.51 points, or 0.79 percent, to 2,454.51 and the Nasdaq Composite dropped 76.39 points, or 1.2 percent, to 6,275.94.
"The geopolitical tensions have prompted a risk off trade amid investors", said Naeem Aslam, chief market analyst at Think Markets UK.
Meanwhile, gold stocks bucked the downtrend, driving the NYSE Arca Gold Bugs Index up by 1.3%.
In the eurozone, the Paris CAC 40 lost 0.6 percent and Frankfurt's DAX 30 shed some 1.2 percent. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 2.9 basis points to 2.212%. US -traded Nikkei futures fell 2 percent to their lowest since mid-May.
He said:"Financial markets are already taking precautions against an escalation with haven buying happening in the Swiss franc, gold and the Japanese yen, though why anyone would want to buy a currency which is on the front line of a possible conflict is beyond me".
CNMI governor backs Trump's stance on North Korea
Worries have escalated nationwide as Trump offered sharp words for the North Korean leader's latest threat. But for now, Walker said he will mainly continue his push for a larger military presence in Alaska.
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