The --color option messes up UTF8 output. Compare the following:

echo "útf8" | LANG=C grep --color=always -E '[ -~]'
echo "útf8" | LANG=C grep --color=always -E '[^ -~]'

Note those regular expressions match ascii and
non ascii data respectively. The second one in
particular is useful for highlighting UTF8 characters.

--- grep.c.orig	2005-12-09 17:37:35.000000000 +0000
+++ grep.c	2005-12-12 14:36:42.000000000 +0000
@@ -130,8 +130,8 @@
 /* The color strings used for matched text.
    The user can overwrite them using the deprecated
    environment variable GREP_COLOR or the new GREP_COLORS.  */
-static const char *selected_match_color = "01;31";	/* bold red */
-static const char *context_match_color  = "01;31";	/* bold red */
+static const char *selected_match_color = "1;31";	/* bold red */
+static const char *context_match_color  = "1;31";	/* bold red */
 
 /* Other colors.  Defaults look damn good.  */
 static const char *filename_color = "35";	/* magenta */
@@ -788,6 +788,19 @@
   const char *mid = NULL;
   char *buf;		/* XXX */
   const char *ibeg;	/* XXX */
+  int match_color_end_pending = 0;
+
+#define MATCH_COLOR_START() \
+  do { if (!match_color_end_pending) { \
+    PR_SGR_START_IF(match_color); \
+    match_color_end_pending = 1; }\
+  } while (0)
+
+#define MATCH_COLOR_END() \
+  do { if (match_color_end_pending) { \
+    PR_SGR_END_IF(match_color); \
+    match_color_end_pending = 0; }\
+  } while (0)
 
   if (match_icase)	/* XXX - None of the -i stuff should be here.  */
     {
@@ -839,17 +852,21 @@
 		  cur = mid;
 		  mid = NULL;
 		}
-	      fwrite (cur, sizeof (char), b - cur, stdout);
+	      if (b - cur) {
+		MATCH_COLOR_END();
+		fwrite (cur, sizeof (char), b - cur, stdout);
+              }
 	    }
 
-	  PR_SGR_START_IF(match_color);
+	  MATCH_COLOR_START();
 	  fwrite (b, sizeof (char), match_size, stdout);
-	  PR_SGR_END_IF(match_color);
-	  if (only_matching)
+	  if (only_matching) {
 	    fputs("\n", stdout);
+	  }
 	}
       cur = b + match_size;
     }
+    MATCH_COLOR_END();
 
   if (buf)
     free(buf);	/* XXX */