ODBC application works while libpq fails

Hi,
I have a very weird situation.

I am trying to develop an application which will connect to the PostgreSQL
server thru 2 different methods: thru the ODBC and using libpq.

Environment:
MacOSX 10.8.
Xcode 4 (latest available for 10.8)
PostgreSQL 9.1 - original from OSX.
Application is compiled with the UNICODE
iODBC DM for OSX 10.8.
Both application and DB server running on the same machine.
The database I'm using was created with the default parameters (just
CREATE DATABASE draft).

When I connect with the ODBC driver, the application works as expected
- no errors or problems.

However when I tried to run the application with libpq I received an
error. The error is:

[quote]
Invalid byte sequence for encoding UTF-8 0xc3\n
[/quote]

The application is written in C++ (not ObjC++).
The table I am trying to query contains the field with the word
"abc+<ALT225>", which inside the database is translated as
"abc\xc3\x9f".

What could be the reason for such behavior?

Is ODBC driver sets the client encoding to some uniform value?
Or there something else?

Thank you.