ANALYST TAKE: "We're seeing significant risk aversion in the markets on Wednesday, with the escalation in tensions between the USA and North Korea triggering moves into safe haven assets", said Craig Erlam, senior market analyst at OANDA.
Europe's main London, Frankfurt and Paris markets started between 0.5 and 1.1 percent lower and Germany's ultra-safe 10-year government bonds were trading at their highest prices since June.
The remarks followed a new report asserting that USA intelligence has assessed that Pyongyang has successfully produced a nuclear warhead that can fit inside its missiles.
The dollar weakened slightly against the yen, which is often sought in times of geopolitical tension.
The Swiss franc, the other traditional currency safety-play, has benefited too. The drop on the day ended the Dow's streak of setting new record closing highs for nine consecutive sessions. South Korean shares, which have been among the strongest performers in the world so far this year, fell 1 percent, while the won lost around 0.6 percent to 1,134.70 to the dollar.
The CBOE Volatility Index, the most widely followed barometer of expected near-term US stock market volatility, hit its highest mark since November 8, when Trump was elected president. The euro zone's version is the highest since April, when France's election was rattling the region.
Unit labor costs had been expected to climb by 1.2 percent compared to the 2.2 percent jump that had been reported for the previous quarter.
The dollar skidded to an eight-week low against the yen on Friday as escalating tensions between the United States and North Korea triggered yet more investor flight to safety.
While this gave investors some hope after a jittery week, there were still signs of nervousness in choppy late afternoon trading, primarily due to ongoing threats between the United States and North Korea.
The Dow Jones Industrial Average fell 94.55 points, or 0.43%, to 21,954.15, the S&P 500 lost 19.51 points, or 0.79%, to 2,454.51 and the Nasdaq Composite dropped 76.39 points, or 1.2%, to 6,275.94. "Pretty remarkable, perhaps even extraordinary, considering", said fund manager BlueBay strategist Tim Ash. Britain's FTSE 100 sank 1.4 percent.
Tension grew after USA president Donald Trump refused to step back from his threat to hit North Korea "with fire and fury" or rule out a pre-emptive strike on the rogue nation if it continued to threaten the United States.
"This situation is beginning to develop into this generation's Cuban Missile crisis moment", ING's chief Asia economist Robert Carnell wrote in a note.
The euro, which hit its highest since the start of 2015 on August 2, dipped 0.1 percent to $1.1761 in morning trade in Europe.
The Labor Department also said unit labor costs rose by 0.6 percent in the second quarter following an upwardly revised 5.4 percent spike in the first quarter.
Crude futures extended losses on fears of slowing demand and lingering concerns over a global oversupply meanwhile.
ENERGY: Benchmark U.S. crude gained 28 cents to $49.84 a barrel in electronic trading on the New York Mercantile Exchange. Japan's Nikkei 225 Index tumbled by 1.3 percent, while Hong Kong's Hang Seng Index fell by 0.4 percent. It is poised to end the week down 1.9 percent.