"Beating City, it's given the football club a massive lift because they now think they can probably lift the trophy this year," Pearce said on Sky Sports’ The Debate show.
"Prior to both games against City they probably thought to themselves that it wasn't a great draw.
"You never want a team from the same country, especially with the form City have been in but they beat them twice.
"They've not just got through over two legs, they've beaten them twice and it must give you a massive lift, especially when you look around Europe and think all these teams are conceding goals and we've got a team that can score goals."
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Sky Sports pundit Stuart Pearce says Liverpool will believe they can win the Champions League
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Jurgen Klopp will find out Liverpool's Champions League semi-finals opponents tomorrow
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Pearce says Liverpool are in pole position to win the Champions League this season.
"I think out of the quarter-finals they looked like the most impressive team heading into the semi-finals," he added.
"I personally would put them in near enough as favourites from what I've seen over the last couple of nights in regards to the opposition they are up against."
Liverpool fans create brilliant new chant on the way home
Pearce thinks Liverpool would prefer to be drawn at home first when the Champions League semi-finals draw takes place tomorrow.
"What might help Liverpool is being drawn at home first," he said.
"Normally the old saying used to be get drawn away and then with the second leg at home we'll get them at home.
"The way Liverpool play and the way they play on the counter-attack, they'll be delighted to go away from home even or with their noses in front because they will score on the road with the way they play."