Thanks a lot for the solution! It worked. And the LED just blinked once.
However I then wrote the same code using a delay function as follows,
-------------------------------------
#include<reg51.h>
#include<stdio.h>
sbit LED=P1^0;
void msdel(unsigned int d);

void main(void)
{
LED=0;
msdel(100);
LED=1;
msdel(100);
for(;;);
}
void msdel(unsigned int d)
{
unsigned char x,y;
for(x=0;x<1275;x++)
for(y=0;y<d;y++);
}
---------------------------------------------

The LED is supposed to blink once like in the last case. But in this case the LED just stays on forever.
What could be the problem in the code.
A similar thing happens when I put the whole main() content in a while(1)loop to make the LED blink infinitely.