Markets in Italy and Spain also saw big declines and while France's Cac 40 and Germany's Dax also ended the day in the red. The Nasdaq composite lost 37 points, or 0.6 percent, to 6,332. Were the situation to escalate, much more than the stock markets would be at risk.
The CBOE Volatility Index, the most widely followed barometer of expected near-term USA stock market volatility, hit its highest mark since November 8, when Trump was elected president. The FTSE 100 index of leading British shares was 0.6 percent lower.
According to the English-language Global Times, which was founded by the Communist Party's People's Daily, China should "make clear that if North Korea launches missiles that threaten United States soil first and the U.S. retaliates, China will stay neutral".
Trump's second warning, however, has shaken markets that have been largely resilient this year, swatting away a slew of risks. It is now on track for its biggest weekly drop since the week before the November 8 USA presidential election.
On August 8, the S&P 500 started the day lower, rose to fresh highs, and closed below the opening levels.
US stock futures were marginally softer on Friday.
On Tuesday, President Donald Trump warned North Korea of "fire and fury" in response to recent threats from Pyongyang, which said it was examining plans for attacking Guam, a US territory in the Pacific with a military base.
The dollar extended losses against the yen to hit a new two-month low.
The Yen gained further ground against the US Dollar during trading on Friday, with the USDJPY dipping below 109.00 for the first time since mid-June.
The yen tends to benefit during times of geopolitical or financial stress as Japan is the world's biggest creditor nation and there is an assumption that Japanese investors there will repatriate funds should a crisis materialize.
Weakness in U.S. Treasury yields may also be supporting the yen, some analysts said. Economists had expected prices to rise by 0.2 percent. Rival Advanced Micro Devices was also down 2.6 percent.
In a note sent to clients late on Thursday, the USA bank predicted the single currency would rise to $1.25 in the first quarter of next year and reach parity with sterling for the first time.
Economic data showed USA worker productivity rose more than expected in the second quarter but the trend remained weak.
Phipps said investors were reassured after Dallas Fed President Rob Kaplan's said on Friday that the Fed needs more evidence of progress toward its inflation goal before raising rates again.
The VSTOXX, the main European gauge of equity investor anxiety, jumped 26 percent to 23.8, a near four-month high, though it remained near historically depressed levels. They soared over 2 percent in the previous two sessions, and are set for a weekly gain of 2.2 percent.
Speculative positions in USA gold futures remain subdued, said UBS strategist Joni Teves.
The Standard & Poor's 500 index fell 10 points, or 0.4 percent, to 2,463.
Global benchmark Brent LCOc1 was marginally lower at $51.88, after Thursday's 1.5 percent drop.
However, the index itself was down by nearly 1%, while the blue-chip STOXX 50 index suffered sharper losses, dropping by 1.7%.