How to process large template files?

I need an advise on how to accomplish the following task. I have a template file (with '%%' to be replaced with some values). Usually I've read the contents of a file to a string variable, made replacements and store the string back to a file. But now I have large file (more than 8K) that doesn't fit in string. Of cource, I can read file by blocks of 8K but it is very bothering.

What mechanism do you suggest?

If you want to edit text (not binary) file, you can try this:
Replace_text_in_a_file_with_the_contents_of_other_file

Nice, thanks.