Nevertheless, the geopolitical uncertainty looks set to continue, dealers said, following Trump's fresh warning Thursday that his earlier threat to unleash "fire and fury" on the reclusive nuclear-armed state may not have been "tough enough". "The VIX index of implied future volatility on the S+P 500 index (the so-called 'fear index), jumped to a three-month high of over 15, and we saw growth-orientated stocks under-perform their value counterparts across developed stock markets".
Gold prices rose to their highest level in two months Thursday, as an escalating war of words between the US and North Korea drove investors into haven investments. The South Korean won sank around 0.8 per cent to 1,133.8 to the dollar, its lowest since July 14.
A spokesman for the Korean People's Army said in a statement that it was "carefully examining" plans for a missile attack on the U.S. Pacific territory, which has a large American military base.
The smaller than expected increase in consumer prices has led to optimism that the Federal Reserve will not be in a hurry to raise interest rates.
The S&P 500 dropped the most since May and MSCI's gauge of stocks across the globe .MIWD00000PUS lost 1.1 percent in its third straight day of declines, as it pulled further back from all-time highs.
USA stocks closed slightly lower Wednesday, making up much of the ground they lost earlier following a rare batch of earnings disappointments by Walt Disney and other big companies.
Safe havens benefited from the move away from stocks - gold rising again to around $1,290 an ounce after surging 1.3 percent Wednesday - but other risky assets such as oil and copper held their price.
Mr Trump's comments also sparked a late afternoon selling on Tuesday, with the Dow ending a nine-day streak of closing records.
The North Korea situation isn't the only thing weighing on stocks. Eastern time. The Dow Jones industrial average added 41 points, or 0.2 percent, to 21,885.
China's Shanghai Composite Index plunged 51.94 points or 1.6% to 3,209.80, as investors continued to book profits in cyclical sectors.
The all-important July inflation numbers out of the United States failed to satisfy dollar bulls' hopes of strongly putting a Fed rate hike later in the year back on the table. The S&P has lost more than 1 percent on only three days this year.
The yield on the benchmark 10-year U.S. Treasury note fell to 2.255 percent from its U.S. close of 2.282 percent on Tuesday. It was last up 1.2% at 1.1305 per euro.
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.
BONDS: Bond prices were rose. Shares of J.C. Penney dropped 78 cents, or 17%, to $3.93 Friday after the department store's second-quarter loss exceeded expectations. Major indexes in Asia closed lower.