Japanese markets were closed for a holiday but the yen powered on, hitting an eight-week high of 108.91 yen to the dollar, adding to its biggest weekly gain since May.
The Dow Jones Industrial Average.DJI fell 204.69 points, or 0.93 percent, to close at 21,844.01, the S&P 500.SPX lost 35.81 points, or 1.45 percent, to 2,438.21 and the Nasdaq Composite.IXIC dropped 135.46 points, or 2.13 percent, to 6,216.87.
USA stocks closed lower on Tuesday after Trump's vow to respond aggressively to any North Korean threats triggered a late afternoon selling spree.
The dollar weakened after news that USA producer prices unexpectedly fell in July, recording their biggest drop in almost a year and pointing to a further moderation in inflation that could delay a Federal Reserve interest rate increase.
In his latest warning to North Korea, US President Donald Trump said on Friday military solutions were "fully in place" and referred to American weapons as being "locked and loaded" should the nuclear-armed nation act "unwisely". The Stoxx Europe 600 benchmark was down 1% (http://www.marketwatch.com/story/european-stocks-face-worst-week-in-9-months-on-us-north-korea-tensions-2017-08-11), while Hong Kong's Hang Seng led the Asian losses with a drop of 2%. It has fallen more than 1 percent on only three days this year.
Financial markets have tended to quickly shake off North Korea's periodic saber-rattling in the past, dismissing it as bluster, but tensions have lingered this year amid signs that it is making progress in its ballistic missile program and on Trump's growing frustration with Pyongyang.
"The market is trying to interpret the CPI data as somewhat positive because it is anticipating that the Fed will be on hold not only in September but also possibly in December", said Robert Pavlik, chief market strategist at Boston Private Wealth.
Many markets have recently climbed to record or multi-year highs, leaving them vulnerable to a sell-off.
"The market's dent only lasted for a week in April when tension rose between them after North Korea launched a missile". USA -traded Nikkei futures NKc1 fell 2 percent to their lowest since mid-May. The Russell 2000 index of smaller-company stocks picked up 1.69 points, or 0.1 percent, to 1,374.23.
The data comes amid tepid inflation that has remained below the Fed's 2% target, despite low unemployment.
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 worldwide oils, declined 20 cents to $51.70 per barrel in London.
The utilities index, often seen as a bond proxy because of its companies' slow reliable growth and high dividends, was the only S&P sector that ended the day up, showing a 0.25 percent gain.
Crude oil prices extended their slide as exports from key OPEC producers rose, despite news of lower crude shipments from Saudi Arabia.
After touching a more than two-month high at $1,291.86, spot gold last added 0.2 percent to $1,288.81 an ounce. The US currency was down 0.3 per cent at 109.94 yen, following a retreat to 109.740, its weakest since June 15th.