Dynamically replace matched special characters

I have a special character file (with list of special characters). I have to read that file and check if the incoming request has any of the special character, if so: replace that with constant else: move it as is

in xslt 1.0 Tried with below code.

<?xml version="1.0" encoding="utf-8"?>
<xsl:stylesheet version="1.0" xmlns:xsl="http://www.w3.org/1999/XSL/Transform"
    xmlns:msxsl="urn:schemas-microsoft-com:xslt" exclude-result-prefixes="msxsl" xmlns:regex="http://exlt.or/regular-expressions">
  <xsl:output method="xml" indent="yes"/>
  <xsl:variable name="charfile" select="document('chars.xml')"/>

  <xsl:template match="@* | node()">
    <xsl:copy>
      <xsl:apply-templates select="@* | node()"/>
    </xsl:copy>
  </xsl:template>  

  <xsl:template match="text()">
    <xsl:call-template name="checkAndReplace">
      <xsl:with-param name="text" select="."/>
    </xsl:call-template>
  </xsl:template>

  <xsl:template name="checkAndReplace">
    <xsl:param name="text"/>
    <xsl:for-each select="$charfile/chars/char">
      <xsl:if test="contains($text,./value/text())">
        <xsl:copy-of select="translate($text,./value/text(),'*')"/>
      </xsl:if>      
    </xsl:for-each>
  </xsl:template>
</xsl:stylesheet>

chars.xml :

<?xml version="1.0" encoding="utf-8"?>
<chars>
  <char>
    <value>@#128;</value>
  </char>
  <char>
    <value>@#129;</value>
  </char>
  <char>
    <value>@#130;</value>
  </char>
</chars>

INPUT:

<?xml version="1.0" encoding="utf-8"?>
<root>
  <child1>abc@#128;</child1>
  <child2>def@#129;</child2>
  <child3>hello</child3>
</root>

Output Required:

<?xml version="1.0" encoding="utf-8"?>
<root>
  <child1>abc*</child1>
  <child2>def*</child2>
  <child3>hello</child3>
</root>

Assuming that the file listing special characters should actually look like this:

chars.xml

<chars>
  <char>
    <value>&#128;</value>
  </char>
  <char>
    <value>&#129;</value>
  </char>
  <char>
    <value>&#130;</value>
  </char>
</chars>

you could use the following stylesheet:

XSLT 1.0

<xsl:stylesheet version="1.0" 
xmlns:xsl="http://www.w3.org/1999/XSL/Transform">
<xsl:output method="xml" version="1.0" encoding="UTF-8" indent="yes"/>
<xsl:strip-space elements="*"/>

<xsl:param name="charfile" select="document('chars.xml')"/>

<!-- identity transform -->
<xsl:template match="@*|node()">
    <xsl:copy>
        <xsl:apply-templates select="@*|node()"/>
    </xsl:copy>
</xsl:template>

<xsl:variable name="search-chars">
    <xsl:for-each select="$charfile/chars/char">
        <xsl:value-of select="value"/>
    </xsl:for-each>
</xsl:variable>

<xsl:variable name="replace-chars">
    <xsl:for-each select="$charfile/chars/char">
        <xsl:text>*</xsl:text>
    </xsl:for-each>
</xsl:variable>

<xsl:template match="text()">
    <xsl:value-of select="translate(., $search-chars, $replace-chars)"/>
</xsl:template>

</xsl:stylesheet>

Given an input of:

XML

<root>
  <child1>abc&#128;</child1>
  <child2>def&#129;</child2>
  <child3>hello</child3>
</root>

the output will be:

Result

<?xml version="1.0" encoding="UTF-8"?>
<root>
  <child1>abc*</child1>
  <child2>def*</child2>
  <child3>hello</child3>
</root>