Don't forget also that IAR has a default stack size of 30 bytes also placed in DATA, and then there is the register bank and your bit variables. You can't use 120 bytes of data for your array, it simply isn't available.

As Russell suggested, the small memory model is your only chance, but even then you will likely have to force some locals into DATA to leave enough room for your array. Otherwise, you'll have to use external ram.

But then again there are 8051 derivatives with external ram internal to the chip, so no extra parts are required.

Dennis