South Korea, a longtime U.S. ally and North Korean adversary, may need to increase investment in its defence systems if conflict escalates, Bloomberg reported. "If you think this is just rattling sabers, and it's just words, then you could view this as a buying opportunity".
London's benchmark FTSE 100 index fell back 1.3 percent, driven by losses in the commodity sector.
The Toronto Stock Exchange's S&P/TSX composite index fell 39.02 points, or 0.26 percent, to end at 15,217.33. May 17 was the last time the three indexes had a bigger single-day decline.
The Dow Jones Industrial Average dropped 204.69 (nearly one percent), closing the session at 21,844.01. All the indexes are down for the week. USA shares were also set to dip, with Dow and S&P futures both inching down 0.1 percent.
"Traders have finally started to wake up to the risks out there, with North Korea acting as the initial catalyst this week", Colin Cieszynski, chief market strategist at CMC Markets, told MarketWatch.
That prompted North Korea to say it was considering firing missiles at Guam, a U.S. Pacific island territory.
Presidential national security chief Chung Eui-yong and his USA counterpart Herbert McMaster discussed the North Korea concern over the phone for 40 minutes Friday morning. That's the biggest increase since May.
But analysts said equities had also fallen as investors took profits. "I don't see it as a fear-driven sell-off".
Housebuilders Persimmon, Taylor Wimpey (LSE: TW.L - news) and Barratt fell by 2.8 to 3% on weak house price data. TMX Group Ltd was up 3.5 percent to C$68.23, while Quebecor Inc added 2.9 percent to C$44.60.
Disappointing quarterly results from big department store chains also weighed down the market. Its shares slid $11.64 to $61.70.
As of Friday, calendar second-quarter earnings have grown by 10.1 percent.
Against the euro, the Swiss currency was little changed at 1.1328 per euro.
In the NY session, USA wholesale inventories for June are set for release. There is the potential for strong resistance on any approach to the $1,300 per ounce area.
Other energy futures trading was mixed.
Unit labor costs had been expected to climb by 1.2% compared to the 2.2% jump that had been reported for the previous quarter. It has weakened 1.5 percent since hitting a 2-1/2 year high of 1.1910 on August 2.
Declines in US stocks accelerated Thursday, a pullback that many investors and analysts said had been overdue with indexes at highs and volatility near record lows.