the handle for the GN rifle (where the blade is connected to via a swivel point) can rotate, allowing the Exia to hold it like a normal sword. it has been used a few times, though as far as i can remember from the show, Setsuna probably used more the "katar" mode of wielding the GN Sword probably for quick slashes and swings.
EDIT: you can see in this image from Dalong's review of the 1/100 Exia
how the said mechanism works. and this image
shows how it is held in "normal sword" mode.