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Talk to Sten, he will eventually tell you that he dropped his swrod at Lake Calehad docks (where you go to get the the Circle's tower), once there you have to talk to a guy who is looting dead bodies, he will tell you he bought the site from a scummy merchant named Feyrn (he is at the entrance to Orzmammar), he will finally tell you he sold the swrod to Dwyn (a dwarf in redcliff village). Go get the sword from Dwyn.