org 00h
loop:	mov a,p1
	mov b,p1
	anl a,#00000010b
	anl b,#00000001b
	rr a
	mov r0,b
	xrl a,r0
	jnz bits        <== What does it do here, if it's zero, that it doesn't do if it's not?
bits:	setb p2.0
	sjmp loop
	end

 

You might consider this:

org 00h
loop:	mov a,p1
	mov b,p1
	anl a,#00000010b
	anl b,#00000001b
	rr a
	mov r0,b
	xrl a,r0
	jnz bits
        sjmp here        ; ------
bits:	setb p2.0 ;              |
here:	sjmp loop        ; <-----
	end

 

Keep in mind, too, that if the two bits are the same, the result will be zero. The way you've written the code, the output will transition to '1' only once and stay that way, since the P2.0 is never cleared.
RE