Stocks ended more than one per cent down in Seoul while the won slumped to a three-week low against the dollar as the United States president and South Korea's volatile neighbour dramatically ramped up their war of words.
Plus, Disney changes direction; the retail stock set to drop 22%; and geopolitical risk rattles global markets. The stock lost $2.36 to $20.67.
Just hours after U.S. President Donald Trump told North Korea that any threat to the United States would be met with "fire and fury", a spokesman for the Korean People's Army said in a statement carried by the North's state-run KCNA news agency that it was considering a strike aimed at U.S. military bases on Guam.
The last time the S&P closed down more than 1 percent was May 17 when it fell 1.8 percent.
According to the Marine Corps, the live-fire drills also involved AH-1S Cobra's 2.75-inch rockets, hosted by the Northwest Islands Defense Command in charge of defending the South's northernmost islands in the Yellow Sea, and the 6th Brigade.
The Nasdaq composite lost 13.31 points, or 0.2 percent, to 6,370.46.
Data showed US producer prices unexpectedly fell in July, recording their biggest drop in almost a year, while another set showed the number of Americans filing for unemployment benefits unexpectedly rose last week.
The stage was set for the USA indexes to go lower early Wednesday as investors around the world reacted to the rising war of words between the US and North Korea, pushing global market indexes lower.
Spot gold XAU= added 0.1 percent to $1,261.71 an ounce, pulling away from the previous session's two-week lows.
The euro was 0.18 percent lower against the greenback but remains the best-performing G10 currency so far this year with gains of more than 11 percent against the dollar. Macy's was down 8.9 percent after the company said its sales continued to decline in the second quarter.
In commodities trading, U.S. crude oil was wallowing around $49 to the barrel amid speculation that a predicted gain in American output will offset OPEC-led efforts to trim a global glut.
CURRENCIES: The dollar slipped to 109.35 yen from 109.85 late Wednesday.
Oil prices edged higher after a report showed USA refineries processed record amounts of crude in the latest week, eating into inventories, although a surprise jump in gasoline stockpiles limited gains.
MARKETS OVERSEAS: Major indexes in Europe were headed lower.
Silver gained 47 cents, or 2.9 percent, to $16.86 an ounce. Tokyo's Nikkei 225 tumbled 1.3 percent, while Seoul's Kospi fell 1.1 percent.