XML Encoding for Special Characters

 In MS SQL 2005, While parsing a XML document i got an error message 'illegal xml character'. Then i found that one of my XML data was containing a special character - ä within it. And i found that in this scenario, the XML Encoding tag in the header should be changed to "iso-8859-1" from the default "utf-8" (i.e)

<?xml version='1.0' encoding='utf-8'?>'
 should be changed to
<?xml version="1.0" encoding="iso-8859-1"?>