"I believed by declaring a variable as static, it serves two purposes..
1. It get initialized to a default value.
2. Its value persists between function calls."

You missed one - and it's the important one in this case:

3. It restricts identifiers defined outside any function to File Scope

By default, identifiers defined outside any function are Global.
As I said before, If your header file is defining data and/or code, and you include it in multiple .c source files, then you will get multiple definition errors from the Linker!!

As Donald has explained, your variables are no longer Global - instead, each "module" has its own private copy of each one!
This is unlikely to be what you want?

Note that none of this is specific to the 8051 - this is all bog-standard ANSI 'C' stuff.

"Now, a better guide to Stephene Reys C-Standards would be nice."

Actually, a good read of K&R is what's needed here - particularly the bits on Scope and Linkage