Use Bash to read line by line and keep space

Maybe IFS is the key point as others said. You need to add only IFS= between while and read.

cat test.file | 
while IFS= read data 
 do echo "$data"
 done

and do not forget quotations of $data, else echo will trim the spaces.

But as Joshua Davies mentioned, you would prefer to use the predefined variable $REPLY.

Actually, if you don't supply an argument to the "read" call, read will set a default variable called $REPLY which will preserve whitespace. So you can just do this:

$ cat test.file | while read; do echo "$REPLY"; done

Just to complement DigitalRoss's response.

For that case that you want to alter the IFS just for this command, you can use parenthesis. If you do, the value of IFS will be changed only inside the subshell. Like this:

echo '  word1
  word2' |  ( IFS='' ; while read line ; do echo "$line" check ; done ; )

The output will be (keeping spaces):

  word1 check
  word2 check

IFS=''
cat test.file |
while read data
do
    echo "$data"
done

I realize you might have simplified the example from something that really needed a pipeline, but before someone else says it:

IFS=''
while read data; do
    echo "$data"
done < test.file