Although using local will solve your problem, I'd stay away from it. While it does "fix" that one problem, you still read the stylesheet file each time you encounter a tag to substitute. Since you open the stylesheet file each time, reading exactly the same data, it would make a lot more sense to read it once, like jdporter suggests.

Here's an example of my take: 
use strict;
use warnings;

my $stylesheet_file = "stylesheet.txt";

sub read_stylesheet
{
     open(STYLESHEET, "<", $stylesheet_file)
        || die "Cannot read stylesheet_file\n";

     my (%tag, $header);
     while (<STYLESHEET>)
     {
          if (/^HEADER\s+(\d+):/)
          {
               $header = $1;
          }
          elsif (/^nm\s+:\s+(\w+)/
          {
               # Make a note of what header this tag
               # appeared in.
               $tag{$1} = $header;
          }
     }
     close(STYLESHEET);

     return \%tag;    # Returns a reference to the hash
}

# ... (Main routine)

my $input_file    = "taggedfile.txt";
my ($output_file) = @ARGV;

my $tag = read_stylesheet();

open(FILE, "<", $input_file)
     || die "Could not read $input_file\n";
open(OUT, ">", $output_file)
     || die "Could not write $output_file\n";

while (<FILE>)
{
     # Perform substitutions
     s/^\{(\w+)\}/\{$1:$tag->{$1}\}/g;

     # Write line ($_) to OUT
     print OUT;
}

close(FILE);
close(OUT);

[download]
This variation has a routine which reads in the stylesheet and returns a hash reference to the data that was read. Theoretically, then, you can read in more than one stylesheet and choose which one you look up from, something that a global variable doesn't really permit.

You shouldn't have to localise $_ if you're careful about what's going on. Having nested file reads is one way to cause trouble, which is what you had there.

If you're not sure where $_ has been, the safe thing to do is used a named variable, such as this: 
while (my $line = <FILE>)
{
     # ... Use $line where you would normally use $_
}

[download]
I'd really suggest steering away from using local declared variables.

In reply to Re: Stumped with $_ being modified by tadman
in thread Stumped with $_ being modified by young_david

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