Limelight Networks Inc said on Thursday it had expanded an online media distribution deal with Microsoft Corp, sending the shares of the digital content delivery company up as much as 20 percent.

Limelight will provide more media streaming and delivery services for Microsoft -- already a top customer -- under a multi-year technology agreement.

The two companies also agreed to license one another's technologies.

We've had a three-year or so relationship with Microsoft and it really has been a fairly traditional supplier-customer relationship. This builds on that and extends it deeper, Limelight Co-Founder and Chief Strategy Officer Michael Gordon told Reuters in an interview.

Microsoft has a very deep portfolio of intellectual property and has been for many years a leader in developing new technology.

The financial terms were not disclosed. Gordon said the deal would generate revenue starting in the third quarter, although this was already factored into its previously issued earnings outlook for the period.

The agreement helped to ease the concerns of some investors over the outlook for Limelight, which helps media and Internet companies deliver bandwidth-heavy services more reliably by finding less congested routes over the Web.

Limelight's share price has fallen about 60 percent since their market debut in June on worries about increasing competition from Akamai Technologies Inc, South Korea- based CDNetworks Co Ltd and new technology companies.

The stock ended up 4.95 percent at $8.90 on the Nasdaq, after rising as high as $10.14. Akamai shares fell 3.32 percent to $30.83.

Gordon said that, while prices appeared to have been falling over the past few years, he did not feel pricing pressure had particularly intensified in the past few months.

Limelight already supports video and game downloading for Microsoft's Xbox Live. It also delivers content for MSNBC.com, a joint online news venture between Microsoft and NBC.

Other Limelight clients include social networking sites Facebook and News Corp's MySpace, as well as online video provider Akimbo Systems.

Earlier this month, the Tempe, Arizona-based company forecast third-quarter loss that was wider than expected, sending its shares to record lows.

(Reporting by Ritsuko Ando)

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