Assuming you finished the immediate Trademeet quests (including hero epilogue), I think it's the leftmost merchant in the southern open market; he also sells the Belt of Inertial Barrier and Cloak of Displacement, IIRC.
I think the merchant in question looks like a nobleman in dress, not the dwarf merchant in the same area. And yes, he appears only during the day sometime. IIRC there were at least two merchants in the south market area...
That seems correct, but I always had to rest to get him to appear. Hmm...seems I always complete the quest in the afternoon, then. Well I agree; if he doesn't appear just rest at the inn and it should solve the problem, I think.
I would undoubtedly prefer the former...or the latter.