|Not quite what I meant|
The dagger can be commanded to defend, in which case the user's AC against the first melee attack against them in the round will be raised to 0 and against all others to 7; if the user's AC is already better than this the dagger gives no extra protection. The dagger may only defend or attack in the course of any single round and can only change mode on the owner's initiative (specifically sub-step D).
The general enchantment of the dagger means that it strikes as a magical weapon but has no plus, and so will not affect any target that requires +2 or more to hit. It does however strike as if wielded by its owner, so if he or she has strength bonuses the dagger will too.
Once combat has ended (no combat within 12"), the dagger will fall to the ground inert.
These daggers may occasionally exhibit special characteristic; roll on the unusual swords table on DMG p166 with -10 to the dice.
* Clarification: the dagger must be used for at least one round in the off-hand before it will dance; it can not be simply commanded to dance from the outset of combat.
Xp value: 350. Gp value: 4000