Bash: Iterating over lines in a variable

With bash, if you want to embed newlines in a string, enclose the string with $'':

$ list="One\ntwo\nthree\nfour"
$ echo "$list"
One\ntwo\nthree\nfour
$ list=$'One\ntwo\nthree\nfour'
$ echo "$list"
One
two
three
four

And if you have such a string already in a variable, you can read it line-by-line with:

while IFS= read -r line; do
    echo "... $line ..."
done <<< "$list"

You can use while + read:

some_command | while read line ; do
   echo === $line ===
done

Btw. the -e option to echo is non-standard. Use printf instead, if you want portability.

#!/bin/sh

items="
one two three four
hello world
this should work just fine
"

IFS='
'
count=0
for item in $items
do
  count=$((count+1))
  echo $count $item
done