London's FTSE 100 dipped by about 90 points, or more than 1%, in morning trading on Friday, adding to a slump of more than 100 points the day before and taking it to its lowest level since May.
With the tense mood pushing European shares down for a third day and Wall Street set to fall again, global stocks were on course for their worst week since Donald Trump won November's election. North Korea said it was completing plans to fire four intermediate - range missiles over Japan to land near the U.S. Pacific island territory of Guam.
Inflation has risen 1.7 percent over the past 12 months, suggesting that inflation pressures remain well under control.
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".
South Korea's KOSPI fell 1.7 per cent on Friday to its lowest since May 24, but its losses for the week were a relatively modest 3.2 per cent.
Many world stock markets have hit record or multi-year highs in recent weeks, leaving them vulnerable to a selloff, and the tensions over North Korea have proved to be the trigger.
The yen on Friday added to a strong weekly rally against the dollar of close to 1.5 per cent, hitting its highest versus the greenback in nearly four months, at 108.73 yen.
The yen tends to benefit during times of geopolitical or financial stress as Japan is the world's biggest creditor nation and there is an assumption that Japanese investors there will repatriate funds should a crisis materialize. Natural gas was also flat at $2.98 per 1,000 cubic feet.
Investors also drew some encouragement from new government data showing US inflation at the consumer level inched higher last month. "If you look at the gold price after the CPI (inflation) data, it tells you that the Fed is not going to be in any rush to increase the interest rate this year", said Naeem Aslam, chief market analyst at Think Markets.
European markets also slid in early trade after Wall Street indices suffered their biggest losses in almost three months Thursday, while the dollar struggled to recover from eight-week lows below 109 yen as investors fled to safe haven assets.
On the currency front, the United States dollar is trading at 108.82 yen compared to the 109.20 yen it fetched at the close of NY trading on Thursday.
The yield on the benchmark 10-year Treasury note settled at 2.191%, its lowest close since June 26, compared with 2.211% Thursday and 2.269% last Friday.
Gold, another classic safe haven asset, was trading at around US$1,285 per ounce, up more than two percent this week and near a nine-week high.
Ongoing global glut concerns lingered in oil markets despite a bigger-than-expected draw in US crude inventories.
The 30-year bond last rose 6/32 in price to yield 2.7847 percent, from 2.794 percent late on Thursday.
US crude fell 0.41 percent to $48.39 per barrel and Brent was last at $51.68, down 0.42 percent on the day.