President Donald Trump warned North Korea again on Thursday not to strike Guam or US allies, saying his earlier threat to unleash "fire and fury" on Pyongyang if it launched an attack may not have been tough enough.
South Korea's KOSPI fell 1.7 percent on Friday to its lowest since May 24, but its losses for the week were a relatively modest 3.2 percent.
Japanese markets were closed for a holiday, but the tense mood dragged Asian shares lower and an MSCI index of stocks across the globe posted its largest weekly drop since the week before Donald Trump won the presidential election in November.
Trump continued to ramp up the rhetoric with a post on Twitter this morning indicating that the U.S. is prepared to take military action against North Korea.
At 9:34 a.m. ET (1334 GMT), the Dow Jones Industrial Average was up 54.06 points, or 0.25%, at 21 898.07, the S&P 500 was up 5.23 points, or 0.21%, at 2 443.44.
Traders reacted with dismay to his fresh warning Thursday that his earlier threat to unleash "fire and fury" on the reclusive nuclear-armed state may not have been "tough enough".
In an apparent response to Trump's tweet, a statement issued by North Korea's official KCNA news agency claimed the president is "driving the situation on the Korean peninsula to the brink of a nuclear war".
The pan-European FTSEurofirst 300 index .fteu3 lost 1.01 percent and MSCI's gauge of stocks across the globe .miwd00000pus shed 0.12 percent.
Emerging market stocks lost 1.27 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan closed 1.47 per cent lower.
"Pretty remarkable, perhaps even extraordinary, considering", said Tim Ash, strategist at fund manager BlueBay.
European stock markets fell further in opening trade on Friday on intensifying fears over North Korea, dealers said.
There were falls of almost 2% on South Korea's Kospi and Hong Kong's Hang Seng, with markets in mainland China and Australia also down - taking their cues from sharp losses on Wall Street earlier.
The dollar was further weighed on Friday by the soft USA inflation data.
The downbeat inflation data added to growing expectations the Federal Reserve may abandon its plan to hike rates later this year, after the central bank left its benchmark rate unchanged in June, citing concerns over the stuttering pace of inflation.
Sterling was last trading at US$1.3007, up 0.25 per cent on the day.
The dollar slipped to 109.04 yen from 109.26 late Thursday.
Despite the past week's decline, the major indexes are in positive territory so far this year, led by the Nasdaq, which is up 16.2 percent.
"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 research note.
Safe havens benefited from the move away from stocks - gold rising again to around $1,290 an ounce after surging 1.3 percent Wednesday - but other risky assets such as oil and copper held their price.
Ongoing global glut concerns lingered in oil markets despite a bigger-than-expected draw in United States crude inventories, leaving prices volatile. Yields fall when bond prices rise.
USA crude fell 0.41 percent to $48.39 per barrel and Brent was last at $51.68, down 0.42 percent on the day.