After touching a more than two-month high, spot gold last added 0.1 percent to $1,287.18 an ounce. The S&P 500 sank 1.7% from Tuesday to Thursday, the Dow fell 1.1%, and the Nasdaq dropped 2.4%.
The Dow Jones Industrial Average .DJI fell 204.69 points, or 0.93 percent, to close at 21,844.01, the S&P 500 .SPX lost 35.81 points, or 1.45 percent, to 2,438.21 and the Nasdaq Composite .IXIC dropped 135.46 points, or 2.13 percent, to 6,216.87.
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.
Japanese markets were closed for a holiday but the yen powered on, hitting an eight-week high of 108.91 yen to the dollar, adding to its biggest weekly gain since May.
Simmering tensions between the U.S. and North Korea have come back to the boil in recent days after Pyongyang disclosed plans to fire missiles over Japan to land near America's Pacific territory of Guam.
The dollar weakened after news that US 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.
The tentative gains "suggest that the headline shock value pertaining to the US-North Korea standoff is starting to dissipate, which is to say actual action will now speak much louder than words", said Briefing.com analyst Patrick O'Hare.
The pan-European FTSEurofirst 300 index .FTEU3 lost 1.11 percent.
On Thursday the greenback had shed 0.8 percent versus the yen, with the Japanese currency rallying broadly against most major currencies.More news: Stocks veer higher into record territory; oil heads lower
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"The yen is the big story really".
The Korean won continued to fall versus the dollar, down 0.13 per cent to 1,143.5 on Friday for a 1.6 per cent decline on the week.
"There are four more (inflation) prints between now and the December FOMC meeting and we expect the Fed to remain data-dependent, if a touch more cautious", said TD Securities in a research note.
In bond markets, the yield in U.S. Treasuries fell, also pressured by the lowered expectations for a Fed move.
Benchmark 10-year notes US10YT=RR were last up 12/32 in price to yield 2.201 percent, from 2.242 percent late on Wednesday.
The 30-year bond last /32 in price to yield 2.7933 percent, from 2.794 percent late on Thursday. US gold futures gained 0.26 percent to $1,293.50 an ounce.
Ongoing global glut concerns lingered in oil markets despite a bigger-than-expected draw in U.S. crude inventories, leaving prices volatile.
"The war of words between the leaders of the US and North Korea continues to dominate investor sentiment", said Forex.com technical analyst Fawad Razaqzada.