How to replace substrings in windows batch file

Expanding from Andriy M, and yes you can do this from a file, even one with multiple lines

@echo off
setlocal EnableExtensions EnableDelayedExpansion
set "INTEXTFILE=test.txt"
set "OUTTEXTFILE=test_out.txt"
set "SEARCHTEXT=bath"
set "REPLACETEXT=hello"

for /f "delims=" %%A in ('type "%INTEXTFILE%"') do (
    set "string=%%A"
    set "modified=!string:%SEARCHTEXT%=%REPLACETEXT%!"
    echo !modified!>>"%OUTTEXTFILE%"
)

del "%INTEXTFILE%"
rename "%OUTTEXTFILE%" "%INTEXTFILE%"
endlocal

EDIT

Thanks David Nelson, I have updated the script so it doesn't have the hard coded values anymore.

SET string=bath Abath Bbath XYZbathABC
SET modified=%string:bath=hello%
ECHO %string%
ECHO %modified%

EDIT

Didn't see at first that you wanted the replacement to be preceded by reading the string from a file.

Well, with a batch file you don't have much facility of working on files. In this particular case, you'd have to read a line, perform the replacement, then output the modified line, and then... What then? If you need to replace all the ocurrences of 'bath' in all the file, then you'll have to use a loop:

@ECHO OFF
SETLOCAL DISABLEDELAYEDEXPANSION
FOR /F %%L IN (file.txt) DO (
  SET "line=%%L"
  SETLOCAL ENABLEDELAYEDEXPANSION
  ECHO !line:bath=hello!
  ENDLOCAL
)
ENDLOCAL

You can add a redirection to a file:

  ECHO !line:bath=hello!>>file2.txt

Or you can apply the redirection to the batch file. It must be a different file.

EDIT 2

Added proper toggling of delayed expansion for correct processing of some characters that have special meaning with batch script syntax, like !, ^ et al. (Thanks, jeb!)