The FTSE 100 in London sank 1.4% by 10 am ET in NY, and shares in the USA were also sharply lower.
"Trump's comments about North Korea have created nervousness and the fear is if the President really means what he said: "fire and fury"," said Naeem Aslam, chief market analyst at Think Markets in London. Banks and retail chains were also among the big decliners.
Sterling was last trading at $1.2998, up 0.07 percent on the day.
The Nasdaq composite lost 13.31 points, or 0.2 percent, to 6,370.46.
I would expect the stock market to react negatively.
With the rhetoric rumbling on, Europe's top-rated German bond yield held near six-week lows.
"Trump's response was aggressive and that's why the (stock) market turned lower", said Ken Polcari, director of the NYSE floor division at O'Neil Securities.
Financial stocks underperformed after US Treasury yields fell as bond prices rose in a flight to safety by nervous investors.
"Amid tensions in the worldwide arena, it's hard to seek higher prices ahead of three days of holidays", Kawaguchi said. The CSI 300 was down 0.6% at the time of writing while Nikkei 225 was marginally lower (-0.1%), after data from Japan showed core machinery orders disappointed, contracting by 1.9% for a third consecutive month.
Global equities remain within earshot of an all-time high as the majority of corporate earnings continue to exceed expectations.
However, Mr Tillerson said he did not believe "there is any imminent threat" to Guam or other United States targets.
Markets were largely flat otherwise, with the S&P down 0.04% overnight and losses in Asia were small.
Mounting tensions lifted US defense stocks.
USA crude rose 0.12 percent to $49.23 per barrel and Brent was last at $52.33, up 0.36 percent on the day.
There have been some markets which have benefited from the U.S.
He added that his main concern was that further escalation, exacerbated by the "unpredictable" Trump and his North Korean counterpart, could prove a "negative catalyst" for United States equities. Eastern. The Dow Jones industrial average rose 0.1%, to 22,130.
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.
Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management, said: "While the tough talk about the potential for war (between the USA and North Korea) is scary, investors have heard it many times before". "Therefore one shouldn't make a big call".
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