The influential financial stocks were among the biggest drags on the index, with Royal Bank of Canada down 1.5 percent to C$92.88, and Manulife Financial Corp falling 4.7 percent to C$24.43, its largest drop since early August a year ago.
The CBOE Volatility Index .VIX , the most widely followed barometer of expected near-term stock market volatility, rose to a near three-month high of 15.36.
The modest rebound came at the end of a turbulent week on Wall Street as escalating tensions between the US and North Korea rattled global markets.
Drops among cyclical sectors weighed on the index, with heavyweight miners Rio Tinto, BHP Billiton, Anglo American and Glencore all dropping between 2.9 to 3.1 per cent as tensions between the U.S. and North Korea hit riskier assets, including metals prices. The index had its biggest drop since mid-May a day earlier.
The decline was broad, with all the 11 major S&P indexes lower. The remarks, following North Korea's earlier revelation of a plan to launch a salvo of ballistic missiles toward the U.S. Pacific territory of Guam, gave investors a reason to pocket profit in the sectors, such as technology, that have been the biggest gainers in recent months, analysts said.
The north Korean crisis comes to Wall Street
The one-upmanship in the "war of words" between Donald Trump and Kim Jong-un came to accelerate the fall of the stock market. Hong Kong's Hang Seng Index plunged by 2 percent, while South Korea's Kospi Index slumped by 1.7 percent.
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Shane Oliver, head of investment strategy at AMP Capital in Sydney, said: "What has changed this time is that the scary threats and war of words between the USA and North Korea have intensified to the point that markets can't ignore it".
Investors bought safe-haven assets such as gold, helping the precious metal touch a two-month high, and the Japanese Yen rose.
On the economic front, data is expected to show that USA consumer prices likely rose in July after being unchanged the prior month. They suggest the US and China, a North Korean ally, could work together to de-escalate the situation.
However, bank stocks, including Goldman Sachs, Bank of America and Morgan Stanley, were down about 1 per cent on the dimming prospects of another rate hike this year. The stock lost 78 cents to $3.93. "This may suggest much is in the price, and therefore risk appetite is taking its own summer holiday", he said in a note to clients.
US crude oil futures settled almost 2 percent lower at $48.59 a barrel, as Russian Federation considered a future output resumption and the Organization of the Petroleum Exporting Countries boosted its July production numbers. Brent crude, used to price global oils, rose 20 cents to $52.10 a barrel in London. The index is bouncing off its lowest closing level in six months. While the German DAX Index has inched up by 0.1%, the UK's FTSE 100 Index and the French CAC 40 Index are down by 0.9% and 1%, respectively. Australia's S&P/ASX 200 dropped 1.1 percent to 5,696.80.