It was the biggest daily fall on the FTSE 100 since April 18 this year when the market lost 180 points. Meanwhile, markets in Japan, South Korea and other Asian countries were also lower, and so-called futures signaled that US markets would also open down.
THE QUOTE: "Today's inflation data put the Fed on pause and really diminishes the fact that there's still some noise going around with the North Korea-U.S. situation", said Phil Blancato, CEO of Ladenburg Thalmann Asset Management.
The sabre-rattling - sparked when President Donald Trump stunned the world with an apocalyptic warning to unleash "fire and fury" on North Korea - continued Thursday as Pyongyang mocked the USA leader as "bereft of reason".
The CBOE Volatility Index, the most widely followed barometer of expected near-term stock market volatility, was at its highest in more than a month.
The Dow and the S&P clung to tiny gains on Tuesday after scaling new records as support from technology stocks offset weakness in the healthcare and materials sectors. "You're less than 2 per cent off the high for the S&P heading into a weekend where uncertainty with North Korea still lingers". Broadcom gave up $5.72, or 2.3 percent, to $243.45.
The VIX, a measure of how much volatility investors expect in stocks, jumped 10.4 percent. Only 3 of the 30 stocks in the Dow finished the day with a gain: IBM, Coca-Cola and McDonald's.
Ongoing global glut concerns lingered in oil markets despite a bigger-than-expected draw in United States crude inventories, leaving prices volatile.
BONDS: Bond prices were little changed. Netflix lost 1.5 per cent. The S&P is looking at a drop of 1.4%, its worst week since March.
ENERGY: Benchmark U.S. crude gained 39 cents to $49.95 a barrel in electronic trading on the New York Mercantile Exchange.
The pan-European STOXX 600 was down 0.7% at closing, France's CAC 40 fell 1.4% after a auto hit a group of soldiers in Paris in what is thought to have been a deliberate act, and a fall in bond yields saw Germany's DAX down 1.1%.
About 6.48 billion shares changed hands on USA exchanges on Wednesday compared with the 6.16 billion average for the last 20 sessions. The euro slid to $1.1752 from $1.1793.
Federal funds futures suggested the chance of rate hike in December fell to 40 percent from 42 percent shortly before the release of the data. The index dropped to a one-month closing low.
Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management, said: "While the tough talk about the potential for war (between the U.S. and North Korea) is scary, investors have heard it many times before". Japan was closed on a public holiday.