The focus on North Korea largely overshadowed a Labor Department report showing an unexpected drop in USA producer prices in the month of July.
"Geopolitics splashed cold water on the markets", said JJ Kinahan, chief strategist at TD Ameritrade. Energy stocks fell along with crude prices as investors kept an eye on the latest company earnings and geopolitical news.
Earlier on Thursday, North Korea dismissed warnings by US President Donald Trump that it would face "fire and fury" if it threatened the United States as a "load of nonsense" and outlined detailed plans on for a missile strike near the US Pacific territory of Guam.
TECH SLIDE: Losses among technology stocks led the market slide.
21st Century Fox will report earnings after the market close in the U.S.
But while investors appeared to favor safe-haven assets, some bargain seekers helped Wall Street's three major indexes pare losses and some US officials sought to dial back tensions.
The tech-heavy Nasdaq composite bore the brunt of the sell-off, losing 135.46 points, or 2.1 percent, to 6,216.87.
South Korea staged what military officials called a "routine" exercise near its contentious western border with North Korea, with Seoul's marines using K9 self-propelled howitzers to fire more than 200 artillery rounds and launching a Spike surface-to-surface missile.
Data showed USA producer prices unexpectedly fell in July, recording their biggest drop in almost a year, while another set showed the number of Americans filing for unemployment benefits unexpectedly rose last week.
In Singapore, the stock market is closed for a public holiday to celebrate the country's National Day.
ASIA'S DAY: Tokyo's Nikkei 225 tumbled 1.3 percent to 19,738.71 and Seoul's Kospi fell 1.1 percent to 2,368.39. "I think gold will break $1,300 in this particular rally coming up and I think silver can break $20", he added. Macy's was down 8.9 percent after the company said its sales continued to decline in the second quarter. The U.S. currency was down 0.3 percent at 109.94 yen, following a retreat to 109.740, its weakest since June 15.
Oil prices edged higher after a report showed US refineries processed record amounts of crude in the latest week, eating into inventories, although a surprise jump in gasoline stockpiles limited gains. The euro fell to $1.1749 from $1.1752. On Tuesday, the DAX added 0.3 percent, the CAC 40 gained 0.2 percent and the FTSE rose 0.1 percent.
Meanwhile, gold stocks bucked the downtrend, driving the NYSE Arca Gold Bugs Index up by 1.3 percent.
The single currency slipped 0.3 percent to $1.1723 and was holding just above a July 28 low of $1.1688.