This shouldn't be rejected. g77 accepts this.

$ cat char.f
      program main
      if (char (254) /= "þ") call abort
      end program main
$ gfortran char.f
char.f:2.24:

      if (char (254) /= "\xFE") call abort
                       1
Error: Unterminated character constant beginning at (1)
$ g77 char.f
$


-- 
           Summary: Strange syntax error with high-value character
           Product: gcc
           Version: 4.3.0
            Status: UNCONFIRMED
          Keywords: rejects-valid
          Severity: normal
          Priority: P3
         Component: fortran
        AssignedTo: unassigned at gcc dot gnu dot org
        ReportedBy: tkoenig at gcc dot gnu dot org
OtherBugsDependingO 19292
             nThis:


http://gcc.gnu.org/bugzilla/show_bug.cgi?id=30452