Since the full LOCAL FN that you posted assembles (by itself) without error,
the cause of the error must still lie elsewhere in your program. I'll take a
small bet that you have an earlier FN which uses labels @3 and so on.  The
problem is then that the assembler

1. remembers @3 from your earlier FN
2. attempts to plant a branch to that label
3. finds that it is more thsn the range of a short branch (blt.s)
4. complains.

>  
>  `@1
>  ` tst.l D0 
>  ` blt.s @3 
>  

The solution is to use unique labels within each FN.

Some assemblers (but not FB) support "local labels" which can be duplicated;
your code would work with such an assembler.

Robert