Can Select statement be used along with Update statement in an SQL Query?

Yes that can be used ,
You can update one field by selecting from another field / table.

following query will help you to update multiple columns at once

update tblOuter
set colOuter1 = a.colInner1,
colOuter2 = a.colInner2,
colOuter3 = a.colInner3,
from ( select colInner1,colInner2,colInner3
from tblInner
where conditions on tblInner columns
) as a
where condition on tblOuter's columns

be careful with your where conditions..........