In late afternoon trading in New York, the Dow Jones Industrial Average shed 0.44 per cent, the Standard & Poor's 500 index declined 0.33 per cent, while the Nasdaq Composite Index slipped 0.19 per cent.
Declines in shares of Boeing and those of United Technologies, down 1.1 per cent and 1 per cent respectively, led the Dow lower.
"There are a lot of geopolitical worries going around," said William Hobbs, head of equity strategy at Barclays' wealth-management unit in London, told Bloomberg News. "The Middle Eastern situation feels like it's not going to go away very quickly. The Islamic State is a significant and very organized military threat."
Both oil and gold prices rose.
For the US, the latest data on manufacturing brought further evidence of strength in the world's largest economy. Markit Economics' preliminary index of US manufacturing came in at 57.9 in September, unchanged from August's 52-month high.
"The survey suggests the manufacturing sector will have helped drive a further robust expansion of the economy as a whole in the third quarter," Chris Williamson, chief economist at Markit, said in a statement. He said Markit expects GDP to grow at an annualised rate of at least 3 per cent and as much as 4 per cent, "depending to a large extent on how the vast services economy fared in September."
Still, a report showing US home prices increased less than expected highlighted the ongoing struggle in this part of the economy. Prices rose a seasonally adjusted 0.1 per cent in July from June, according to the Federal Housing Finance Agency.
"The rest of the economy continues to deliver the goods, but the housing market is still not performing as everybody thought it would and that's going to take some time," Eugenio Aleman, a senior economist at Wells Fargo Securities in Charlotte, North Carolina, told Reuters.
Meanwhile the picture for the euro-zone economy remains bleak. Markit Economics' purchasing managers indexes for manufacturing and services in the euro zone showed that growth slowed. A composite index fell to 52.3 in September, down from 52.5 in August.
"The survey paints a picture of ongoing malaise in the eurozone economy," Chris Williamson, chief economist at Markit, said in a statement. "For a central bank hoping that the economic data flow will start to improve, the [European Central Bank] will be disappointed by the ongoing weakness of the PMI."
Europe's Stoxx 600 Index finished the session with a 1.4 per cent drop from previous close, as did the UK's FTSE 100 Index. Germany's DAX retreated 1.6 per cent, while France's CAC 40 sank 1.9 per cent.