Instead of using the AddressBlock field, which has very limited abilities, you should insert the actual mergefields that comprise the addressing. Quite possibly, though, the gap is due to paragraph formatting - check the space before/after settings for the paragraph you're adding the AddressBlock field to.

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Cheers,
Paul Edstein
[Fmr MS MVP - Word]

Thank You macropod, I've done as suggested and it seems OK on my test sheet.
I've checked paragraph settings and they are set (from original effort to solve this) at single line spacing and zero before and after spacing. However I don't understand if this feature is "designed for the job" why it doesn't seem to work properly.