From what I have seen about the weapons with the % bonus damage, it does indeed stack, but only for the battle in which it is being used. Each time I hit a target with the sword of wrath, the next hit was always harder. The best way to determine if the damage is going up, is look at your damage stat, then attack a target, then check your damage stat again. It should have gone up by an appropriate amount. Then after the battle is completed, the damage is reduced back to its normal values.
