The overall financials group, which accounts for roughly a third of the index, declined 1.4 per cent, while energy shares also fell 1.4 per cent as oil prices turned down.
The September crude contract was up 20 cents to US$49.76 per barrel and the September natural gas contract was up seven cents to US$2.95 per mmBTU.
The Standard & Poor's 500 index fell 8 points, or 0.4 percent, to 2,466 as of 2:45 p.m. It was the biggest percentage loss since mid-June.
"People are concerned that a shouting match could lead to someone pressing a button", said Irwin Michael, portfolio manager at ABC Funds.
The North Korea situation isn't the only thing weighing on stocks.
The CBOE Volatility Index (VIX - 11.11) gained 0.2 point, or 1.4%.
Retailers' results are being keenly watched by investors to gauge the companies' strategy to counter No. 1 online retailer Amazon.com's growth. Travel-review website operator TripAdvisor was down 2.7 per cent. Sky (LON:SKY) will be in focus today amid reports that Fox's big for the company could face further delay.
Shares of Walt Disney were down 4.23 per cent, the biggest drag on Dow, as investors doubted whether the company can succeed with its plan to launch its own streaming services rather than rely on Netflix to reach online viewers.
2 biotech stocks that rallied after earnings.More news: Google Fire Software Engineer Over Offensive Memo
More news: Wall Street finished a hard week on a high note
More news: Gold price climbs - Newspaper
Ryu Yong-seok, a market analyst at KB Securities Co., said tensions between North Korea and the United States are a negative factor in the local stock markets that could drag down the index.
US equities steepened their losses late in the session after President Donald Trump said his earlier warnings to North Korea may not have been tough enough. He said that North Korea "can be very very nervous" if it acts on either the U.S. or its allies, and warned that "things will happen to them like they never thought possible". North Korea responded by saying it was "carefully examining" the idea of a missile strike on Guam, a U.S. Pacific territory.
The S&P's record close on August 7 likely helped fuel its latest sell-off.
But in some respects, investors do seem more scared.
Falls were also seen on Wall Street, with the Dow Jones Industrial Average down 0.5% about 15 minutes into trading and the Nasdaq tumbling by 0.6%.
The Dow fell more than 200 points, a almost 1% drop, and its biggest dip in three months. It is now on track for its biggest weekly drop since the week before the November 8 USA presidential election. Only 3 of the 30 stocks in the Dow finished the day with a gain: IBM, Coca-Cola and McDonald's.
Investors reacted by driving up the price of gold and bonds, traditional safe-haven plays.
The CBOE Volatility Index, better known as the VIX and the most widely followed barometer of expected near-term stock market volatility, rose the most in about 12 weeks.The index ended up 4.93 points at 16.04, the highest level since November 8, when Trump was elected president. Macy's slumped 10 percent after reporting its 10th straight decline in a key sales measure.