Setting the correct encoding when piping stdout in python

# -*- coding: utf-8 -*-
print "åäö"

UnicodeEncodeError: 'ascii' codec can't encode character u'xa0' in position 0: ordinal not in range(128)

# -*- coding: utf-8 -*-
import sys
reload(sys)
sys.setdefaultencoding('utf-8')
print "åäö"

# -*- coding: utf-8 -*-
print u"åäö".encode('utf-8')

import sys
for line in sys.stdin:
    # decode what you receive:
    line = line.decode('iso8859-1')

    # work with unicode internally:
    line = line.upper()

    # encode what you send:
    line = line.encode('utf-8')
    sys.stdout.write(line)

# -*- coding: utf-8 -*-
print u"åäö".encode('utf-8')

import sys
import codecs
sys.stdout = codecs.getwriter('utf8')(sys.stdout)