PCF8574 doesnot send ACK - i2c

Question

I am trying to connect a PCF8574 I/O ex-pander to 89S51 MCU.
The device address as per data sheet is 27h and after adding write bit 0
the address is 4Eh and for read it is 4Fh. I am sending write request i.e.
4Eh and it somehow works. If i try to read by sending 4Fh then the ACK is
never received.
I have noticed that during the write request i can write any value that
does not have LSB 0. If any value with LSB 0 is sent for write then again
the chip doesnot send ACK.
From above i understood that LSB of the data or command that I am sending have
something to do with the ACK. If the LSB is 0 then the SDA line is set to
LOW by master. So the slave don't have to bring the SDA line low to send
back ACK. Does it mean that the slave is not sending the ACK at all. It is the
Master that is thinking falsely that ACK is available only because it has bring the
SDA line LOW and checking the same LOW and thinking its ACK from slave.
I may be mistaken, but in don't know how to get over this situation.
Below is my sample C code written in SDCC compiler. This is only the Write part.
Job of this code is to continuously send AAh and 55h to the slave so that is can
observe the port activity by connecting LED. It can send AAh but goes into infinite
loop while checking of ACK when tries to send 55h. Again here 55h have LSB 1 so it fails.**
#include<8052.h>
#define SDA P0_0
#define SCL P0_1
#define HEARTBEAT_LED P1_0
void msDelay(unsigned int);
void I2CStart(void);
void I2CStop(void);
void i2c_write_byte(unsigned char Data);
/*****************************************
* Write to slave device with
* slave address e.g. say 0x27+/W=0x4E
*****************************************/
void main(void)
{
I2CStart(); // Send start condition
i2c_write_byte(0x4E); // Send slave address + write request
while(1)
{
i2c_write_byte(0xAA); //Send data
msDelay(100);
i2c_write_byte(0xFF); //Send data
msDelay(100);
}
}
void I2CStart(void)
{
SDA = 1;
SCL = 1;
SDA = 0;
SCL = 0;
}
void I2CStop(void)
{
SDA = 0;
SCL = 1;
SDA = 1;
SCL = 0;
}
void i2c_write_byte(unsigned char Data)
{
unsigned char i;
for(i=0;i<8;i++)
{
SCL=0;
SDA=(Data &(0x80>>i));
SCL=1;
}
while(SDA!=0);
SCL=0;
SCL=1;
SCL=0;
}
void msDelay(unsigned int itime)
{
unsigned int i, j;
for(i=0;i<itime;i++)
for(j=0;j<127;j++);
}