MySql data conversion from latin1 to utf8

I am trying to convert my MySql 5.0.* application data from latin1 to UTF8.  In doing so, my European words with special characters are getting truncated upon uploading.

My database settings were originally:
character_set_client    latin1
character_set_connection        latin1
character_set_database  latin1
character_set_filesystem        binary
character_set_results  latin1
character_set_server    latin1
character_set_system    utf8
character_sets_dir      /usr/share/mysql/charsets/
Variable_name  Value
collation_connection    latin1_swedish_ci
collation_database      latin1_swedish_ci
collation_server        latin1_swedish_ci


Based on database config file changes, they are now:
character_set_client    utf8
character_set_connection        utf8
character_set_database  utf8
character_set_filesystem        binary
character_set_results  utf8
character_set_server    utf8
character_set_system    utf8
character_sets_dir      C:\\apps\\mysql\\share\\charsets\\
Variable_name  Value
collation_connection    utf8_general_ci
collation_database      utf8_general_ci
collation_server        utf8_unicode_ci

This seems correct.

My code does the following:
mysqldump ${DATABASE} ${ID} ${PASSWORD} --default-character-set=latin1 |
            sed -e "s/DEFAULT CHARSET=latin1/DEFAULT CHARSET=utf8/g" | \
            sed -e "s/SET NAMES latin1/SET NAMES utf8/g"  > datafile

I drop the old database and recreated it as UTF8.

Then I do:
cat datafile | mysql --default-character-set=utf8 ${ID} ${PASSWORD} ${DATABASE}

Once this is done the data after special characters in fields is truncated in the new database.  datafile holds data that looks like it still has the special characters.

Ideas on what I am doing wrong?

Thanks!