AT89C51 Port2 pins generating Sq. wave even when not programmed to do so

I am writing a code to interface 4 SSD with AT89C51 at Port 2 and Port 0.
Port 2 is used to select the SSD and the Port 0 lines act as data lines to SSD (through ULN2004).
I have written code for the same. And works as expected in keil4 simulator.
But the real problem is that the code does not work on AT89C51 IC.
So i modified the code to Turn-On and Turn-Off the port pins of all ports. But nothing happens.

Instead square wave is generated on Port 2 pins, such that square wave frequency at
P2.0=x, P2.1=2x, P2.2=4x, and so on...(Very typical behaviour). Other port pins remain high.

so i checked the ALE signal, which goes high once every 25mSec.
The crystal osc frequency = 12MHz. (i am worried about ALE signal)

The following is the simple code that i programmed just to turn-on & turn-off port pins.
Port0 has pull-up resistors.

#include<intrins.h>
#include <REGX51.H>

bit flg=0;

void main()
{
        SP = 0x50;
        P0 = 0;

        TMOD = 0x01;    //Timer1 - Counter Mode, 16Bit Counter. Timer0 - 16Bit Timer
        TCON = 0;
        TH1 = 0;
        TL1 = 0;
        TH0 = 0xF6;     //F63C To generate delay of 2.5mSec
        TL0 = 0x3C;     //D8F0 to generate delay of 10mSec
                        //FC18 to generate delay of 1msec

        IT0 = 1;        //Interrupt0 -> Negative Edge Triggerred
        IE = 0;         //Disable all interrupts
        IP = 0;
        IE = 0x82;

        TR0 = 1;

        while(1)
                ;
}


void TIMER0_ISR(void) interrupt 1       //5msec interrupt for 7-segment display.
{
        TR0 = 0;
        TH0 = 0xF6;     //F63C To generate delay of 2.5mSec
        TL0 = 0x3C;     //D8F0 to generate delay of 10mSec
                        //FC18 to generate delay of 1msec
        TR0 = 1;

        flg = ~flg;

        if(flg)
        {
                P0 = 0xFF;
                P1 = 0xFF;
                P2 = 0x00;
                P3 = 0x00;
        }
        else
        {
                P0 = 0x00;
                P1 = 0x00;
                P2 = 0xFF;
                P3 = 0xFF;
        }
}

I program the IC using ALL-11 programmer. The hardware is ok.

PS: Have worked on P98V51RD2FN and ARM, Cortex controllers also. But have never faced such a problem.