Oops! Wrong assumption on my part, looks like the 240D doesn't use a harmonic balancer.

At any rate, check the bolts that mount the pulleys.
If either pulley is loose, the wobble that results at high rpm can cause the pulleys to strike each other and generate the sparks that were seen.

If crankshaft pulley bolts are loose, remove them, clean and degrease the bolts and threaded recesses and reassemble with a dab of blue Loctite to the right torque.

The pulleys are close, about 2mm apart, but they shouldn't contact each other at any time.

I replaced the original water pump pulley on my 78 W116 300SD with a smaller one from a 1985 300SD to get better coolant flow.
The Contech V belts were changed from the original size of 10 X 1035 to the smaller 10 X 1005 size V belts when the water pump pulley was changed out.

Be careful removing the fan bolts, they tend to get rounded if you don't use a thin closed end wrench.
Replace any rounded bolts.

Be extra careful removing the bolts that mount the water pump the aluminum housing.
They can get corroded in place and shear off.
Use some penetrant, get the engine hot, and use a six point socket.

Use nickel antiseize when reinstalling.

Best of luck on replacing the water pump.

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78 W116 300SD 'Desert Rose' new as of 01/26/2014
79 W116 300SD 'Stormcloud' RIP 04/11/2022