The C standard says that text files must end with a newline or the data after the last newline may not be read properly.

ISO/IEC 9899:2011 §7.21.2 Streams

A text stream is an ordered sequence of characters composed into lines, each lineconsisting of zero or more characters plus a terminating new-line character. Whether thelast line requires a terminating new-line character is implementation-defined. Charactersmay have to be added, altered, or deleted on input and output to conform to differingconventions for representing text in the host environment. Thus, there need not be a one-to-one correspondence between the characters in a stream and those in the externalrepresentation. Data read in from a text stream will necessarily compare equal to the datathat were earlier written out to that stream only if: the data consist only of printingcharacters and the control characters horizontal tab and new-line; no new-line character isimmediately preceded by space characters; and the last character is a new-line character.Whether space characters that are written out immediately before a new-line characterappear when read in is implementation-defined.

I would not have unexpected a missing newline at the end of file to cause trouble in bash (or any Unix shell), but that does seem to be the problem reproducibly ($ is the prompt in this output):

$ echo xxx\\cxxx$ { echo abc; echo def; echo ghi; echo xxx\\c; } > y$ cat yabcdefghixxx$$ while read line; do echo $line; done < yabcdefghi$ bash -c 'while read line; do echo $line; done < y'abcdefghi$ ksh -c 'while read line; do echo $line; done < y'abcdefghi$ zsh -c 'while read line; do echo $line; done < y'abcdefghi$ for line in $(<y); do echo $line; done      # Preferred notation in bashabcdefghixxx$ for line in $(cat y); do echo $line; done   # UUOC Award pendingabcdefghixxx$

It is also not limited to bash — Korn shell (ksh) and zsh behave like that too. I live, I learn; thanks for raising the issue.

As demonstrated in the code above, the cat command reads the whole file. The for line in `cat $DATAFILE` technique collects all the output and replaces arbitrary sequences of white space with a single blank (I conclude that each line in the file contains no blanks).

Tested on Mac OS X 10.7.5.

What does POSIX say?

The POSIX read command specification says:

The read utility shall read a single line from standard input.

By default, unless the -r option is specified, <backslash> shall act as an escape character. An unescaped <backslash> shall preserve the literal value of the following character, with the exception of a <newline>. If a <newline> follows the <backslash>, the read utility shall interpret this as line continuation. The <backslash> and <newline> shall be removed before splitting the input into fields. All other unescaped <backslash> characters shall be removed after splitting the input into fields.

If standard input is a terminal device and the invoking shell is interactive, read shall prompt for a continuation line when it reads an input line ending with a <backslash> <newline>, unless the -r option is specified.

The terminating <newline> (if any) shall be removed from the input and the results shall be split into fields as in the shell for the results of parameter expansion (see Field Splitting); [...]

Note that '(if any)' (emphasis added in quote)! It seems to me that if there is no newline, it should still read the result. On the other hand, it also says:

STDIN

The standard input shall be a text file.

and then you get back to the debate about whether a file that does not end with a newline is a text file or not.

However, the rationale on the same page documents:

Although the standard input is required to be a text file, and therefore will always end with a <newline> (unless it is an empty file), the processing of continuation lines when the -r option is not used can result in the input not ending with a <newline>. This occurs if the last line of the input file ends with a <backslash> <newline>. It is for this reason that "if any" is used in "The terminating <newline> (if any) shall be removed from the input" in the description. It is not a relaxation of the requirement for standard input to be a text file.

That rationale must mean that the text file is supposed to end with a newline.

The POSIX definition of a text file is:

3.395 Text File

A file that contains characters organized into zero or more lines. The lines do not contain NUL characters and none can exceed {LINE_MAX} bytes in length, including the <newline> character. Although POSIX.1-2008 does not distinguish between text files and binary files (see the ISO C standard), many utilities only produce predictable or meaningful output when operating on text files. The standard utilities that have such restrictions always specify "text files" in their STDIN or INPUT FILES sections.

This does not stipulate 'ends with a <newline>' directly, but does defer to the C standard.

A solution to the 'no terminal newline' problem

Note Gordon Davisson's answer. A simple test shows that his observation is accurate:

$ while read line; do echo $line; done < y; echo $lineabcdefghixxx$

Therefore, his technique of:

while read line || [ -n "$line" ]; do echo $line; done < y

or:

cat y | while read line || [ -n "$line" ]; do echo $line; done

will work for files without a newline at the end (at least on my machine).

I'm still surprised to find that the shells drop the last segment (it can't be called a line because it doesn't end with a newline) of the input, but there might be sufficient justification in POSIX to do so. And clearly it is best to ensure that your text files really are text files ending with a newline.

According to the POSIX spec for the read command, it should return a nonzero status if "End-of-file was detected or an error occurred." Since EOF is detected as it reads the last "line", it sets $line and then returns an error status, and the error status prevents the loop from executing on that last "line". The solution is easy: make the loop execute if the read command succeeds OR if anything was read into $line.

while read line || [ -n "$line" ]; do

Adding some additional info:

1. There's no need to use cat with while loop. while ...;do something;done<file is enough.
2. Don't read lines with for.

When using while loop to read lines:

1. Set the IFS properly (you may lose indentation otherwise).
2. You should almost always use the -r option with read.

with meeting the above requirements a proper while loop will look like this:

while IFS= read -r line; do  ...done <file

And to make it work with files without a newline at end (reposting my solution from here):

while IFS= read -r line || [ -n "$line" ]; do  echo "$line"done <file

Or using grep with while loop:

while IFS= read -r line; do  echo "$line"done < <(grep "" file)