If you turned "use strict" on, you'd see the problem.

string = "
blah



@QUERY
meaningful data
meaningful data
... etc...
@ENDQUERY

@QUERY2
more data
more data
... etc ...
@ENDQUERY2";

Possible unintended interpolation of @QUERY in string at (eval 1) line
+ 1, <> line 16.
Possible unintended interpolation of @ENDQUERY in string at (eval 1) l
+ine 1, <> line 16.
Possible unintended interpolation of @QUERY2 in string at (eval 1) lin
+e 1, <> line 16.
Possible unintended interpolation of @ENDQUERY2 in string at (eval 1) 
+line 1, <> line 16.
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Replace the "s with 's when you initialise $string and you will see the correct result.

Also, as Enlil points out elsewhere in the thread, my regex was more complex than necessary. It can be replaced with s[\s+(\n\@QUERY)][$1]g;.