Both correct, with different meanings, imho:
"Sim, eu falo" = Yes, I talk/speak"
"Sim, o falo" = Yes, I talk/speak it".
That "o" you used before verb serves, in this case, as a complement to the verb...
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"Sim, eu falo" or simply "Sim, falo" and even "Falo, sim" are way more common and natural.
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Você fala português?
Sim, eu falo.
June 1, 2017
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Sim, eu falo / falo / sim
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In Portuguese we often answer a question using the main verb of the question.
So...
Você fala português?
Falo (or Sim, eu falo / Eu falo sim)
Other examples
Você come carne?
Como
Você vai ao cinema?
Vou
etc.
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