The Replace command is working on the entire found component which includes the paragraph mark from the preceding content, hence the preceding paragraph getting the style applied.

There may be another more direct way but the method I would normally use involves three steps:
1. Use your current find and include some unique text in the replace without applying formatting. eg replace with "zxzx\2"
2. Find the unique text and replace it with the style formatting
3. Remove the unique text.

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Andrew Lockton
Chrysalis Design, Melbourne Australia