Tensions between North Korea and the US have intensified in recent days after Trump warned of severe retribution should the authoritarian state proceed with any more missile tests or threats.
A batch of disappointing company earnings also helped pull the market lower, with consumer-focused companies and technology stocks among the biggest decliners.
"U.S. -North Korean military tensions continued to dominate sentiment, pushing U.S. bond yields down and increasing the price of gold", analysts at VTB Capital said in a note.
KEEPING SCORE: The Standard & Poor's 500 index fell 7 points, or 0.3 percent, to 2,466 as of 11:20 a.m.
The Dow Jones industrial average fell 204.69 points, or 0.9 percent, to 21,844.01. The Nasdaq composite lost 76 points, or 1.2 percent, to 6,275.
The Toronto Stock Exchange's S&P/TSX composite index was up 21.58 points, or 0.14 per cent, at 15,277.93 shortly after opening in negative territory.
In a statement delivered at his Bedminster, N.J., golf club on Tuesday, Trump said, "North Korea best not make any more threats to the U.S. They will be met with fire and fury like the world has never seen". The comments follow reports that the North has mastered a technology needed to strike the United States with a nuclear missile.
On the US economic front, a report released by the Labor Department showed a modest uptick in consumer prices in the U.S.in the month of July. "I have a feeling that by the end of the week, we'll feel this was just another blip on the radar". Shares of Macy's lost 10% and Kohl's fell 5.8%. Netflix also fell, giving up $4.57, or 2.6 percent, to $173.79.
The Labor Department said its consumer price index inched up by 0.1 percent in July after coming in unchanged in June.
Finance News: Gold Shines As US-North Korea Tensions Mount
Dai-ichi Life Holdings dropped 1 percent, T&D Holdings fell 2.2 percent while Mitsubishi UFJ Financial Group declined 0.9 percent. Ten-year US yields dropped 4.3 basis points to 2.24 percent and German equivalents fell 3 bps to 0.43 percent, a six-week low.
Energy stocks fell along with the price of crude oil. Broadcom gave up $5.72, or 2.3 percent, to $243.45.
Watch maker Fossil Group plunged 25 percent after reporting a weak quarter. The company booked a hefty charge and said its CFO is leaving the company. The stock lost $2.97, to $8.87.
USA stock indexes were set to open little changed on Friday, with the S&P 500 on track to post its biggest weekly loss in nine months, as investors remained cautious on heightened tensions between the United States and North Korea. The FTSE 100 index of leading British shares was 0.6 percent lower.
The Dow is down 248.80 points, or 1.1 percent.
A weaker-than-expected July consumer price data also supported the recovery.
"The typical text book trade is that investors rush for safe havens". Viacom Inc. slid 60 cents, or 1.9 percent, to $30.17.
Gold rose 0.6 per cent to $1,268 an ounce. Brent crude, used to price global oils, gained 56 cents, to $52.70, in London.
CURRENCIES: The dollar fell to 109.96 yen from 110.48 yen late Tuesday.