Utf8 encoding

Hello,
        I am parsing an xml file using libxml2. The xml file has umlauts(german 
keys ü/ö/ä etc) , °(degree) atc as the characters.
        Could someone tell me how to encode such an xml to utf8? 

        I get the below error:
        "parser error : Input is not proper UTF-8, indicate encoding !"

        Below is the snippet of code that I used.

        my $parser = "";
        my $doc = "";

        $parser = XML::LibXML->new();#  
        $doc = $parser->parse_file( $x_file );

        I tried to encode using "setEncoding" but no results.

-Shashi