Today: Netflix (NFLX) makes yet another groundbreaking deal, lining up original children's programming from DreamWorks; stock hits highest level in nearly two years. Also: Wall Street flashes higher ahead of Fed meeting as Silicon Valley's Prism drama continues.

The Lead: Netflix hoping to ride Shrek to success in children's programming

Netflix shares zoomed more than 7 percent higher Monday after the company struck its biggest original-programming deal yet, a contract with DreamWorks Animation that will produce children's shows based on the studio's hit movie franchises such as "Shrek" and "Kung Fu Panda."

The two companies did not disclose what Netflix will pay, but the Los Gatos video-on-demand firm called it "the largest deal for original first-run content in Netflix history" in its news release Monday. Netflix already beat out HBO for the rights to DreamWorks movies in a deal the companies signed in 2011, which kicks in this year, and they are also collaborating on a cartoon tie-in to DreamWorks' upcoming "Turbo" movie.

Executives from both companies praised their partners Monday. "Netflix is a visionary company that continues to redefine the way audiences watch television," DreamWorks Animation CEO Jeffrey Katzenberg said in Monday's announcement, while Netflix Chief Content Officer Ted Sarandos called the new contract "a major expansion of what's already a phenomenal relationship."

Children's programming is one of the biggest battlegrounds as Netflix tries to fight off competitors in the streaming-video market: Amazon recently beat out Netflix for exclusive rights to some Viacom programming including "SpongeBob SquarePants," "Dora The Explorer" and other popular kids' shows in its biggest deal to date, underscoring the importance. Monday's move could more than make up for that loss to Amazon because the Viacom shows will still be exclusive to Viacom's cable networks before migrating over to Amazon's Prime service, while Netflix will be the only home for specific DreamWorks productions.

Cantor Fitzgerald analyst Youssef Squali said in a note that the deal "fills a hole left by Viacom's kid's programming (moving to Amazon) and does so on a differentiated (and) exclusive basis."

However, the deal also gives Netflix access to nonexclusive but popular cartoons and movies that DreamWorks acquired last year when it acquired Classic Media for $155 million, including "Rocky & Bullwinkle," "Casper the Friendly Ghost" and "Richie Rich."

The deal signals Netflix's growing stature among content producers, Jefferies Group analyst Brian Fitzgerald told Bloomberg News. "Netflix is starting to get to a degree where content companies are considering them a viable distribution partner," and are "coming to Netflix for deals instead of vice versa," he said.

Netflix stock jumped more than 7 percent, its best one-day performance since April, giving it the most successful session of any company in the Standard &Poor's 500 index. Netflix is also the best-performing S&P 500 stock so far in 2013, gaining nearly 150 percent on the year. Shares closed at $229.23 after a gain of 7.1 percent.

SV150 market report: Google, Apple and Facebook gain despite Prism drama

While Netflix outperformed the rest of the S&P 500, other stocks also got a nice bounce Monday, with all three major U.S. indexes gaining more than 0.7 percent as traders looked ahead to the beginning of the Federal Reserve's meeting on Tuesday. Silicon Valley stocks outperformed the larger market, with the SV150 gaining 1 percent despite more negative attention from the NSA Prism drama.

Edward Snowden, who originally leaked details of the National Security Agency's ability to gain access to American's personal info through large corporations, claimed Google (GOOG) and Facebook "were misleading" in their original denials of the NSA's "direct access" to their servers. Meanwhile, Apple (AAPL) released data on the number of requests it received in the last six months, as Facebook did at the end of last week and Google has made a habit of doing annually. 

None of the three companies suffered on Wall Street, however. Apple gained 0.5 percent to $432 as executive Eddy Cue answered questions about Steve Jobs in another day of testimony at the company's e-books trial, but the gain wasn't enough to maintain its lead as the world's most valuable company, with Exxon Mobil moving 1 percent higher and barely eclipsing the Cupertino company Monday. Google's share price could change dramatically sometime in the coming weeks, as the company reached a settlement with suing shareholders to split the stock, which it announced last year. Google -- which also announced expanded Chromebook sales and a campaign against child porn on Monday -- closed with a 1.3 percent gain at $886.25, but the company's share price should cut in half, with volume of shares doubling, when the split takes place. Facebook's momentum from Friday's announcement of a product event at its headquarters this week continued, with the Menlo Park social network gaining 1.7 percent to $24.03 as TechCrunch reported Thursday's announcement would be added video capability on Instagram.

Silicon Valley's large-cap stocks matched or exceeded those gains: Hewlett-Packard (HPQ) moved 1.7 percent higher to $25.16, Cisco (CSCO) led the Dow with a 2.5 percent gain to $24.70 and hit a new 52-week intraday high, Oracle (ORCL) gained 1.5 percent to close at $34.27, and Intel (INTC) moved 0.7 percent higher to $25.10 while hinting at wearable devices.

Yahoo (YHOO) increased 1 percent to $26.54 while striking a deal with the San Francisco 49ers for exclusive rights at the NFL club's new Levi's Stadium in Santa Clara. Tesla continued its hot streak by gaining 1.9 percent to $102.20 despite buzz surrounding a new Chinese competitor, but CEO Elon Musk's "other" local company, SolarCity, dropped 0.9 percent to $35.96.

Up: Ruckus, Netflix, Yelp, Electronic Arts (ERTS), Advanced Micro Devices, Cisco, Applied Materials, Tesla, NetApp, Splunk, Zynga, HP, Facebook, Workday, eBay (EBAY), Oracle, Adobe (ADBE), Google, SunPower (SPWRA), Yahoo, Nvidia, Intuit (INTU), Intel

Down: Gilead, SolarCity, LinkedIn

The SV150 index of Silicon Valley's largest tech companies: Up 12.51, or 1 percent, to 1,264.47

The tech-heavy Nasdaq composite index: Up 28.57, or 0.83 percent, to 3,452.13

The blue chip Dow Jones industrial average: Up 109.67, or 0.73 percent, to 15,179.85

And the widely watched Standard & Poor's 500 index: Up 12.31, or 0.76 percent, to 1,639.04

Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/mercbizbreak.