I'm not sure you can do that command. There are only two options on that can be used for the ON UPDATE clause.
Here's the complete syntax (search for ON UPDATE). You either take NO ACTION or CASCADE.
Here's an extract from BOL
If CASCADE is specified, the row is updated in the referencing table if that row is updated in the parent table. If NO ACTION is specified, SQL Server raises an error and the update action on the row in the parent table is rolled back.
But it still can be done.
Create an INSTEAD OF trigger to do the CASCADING update for you. The cascade, in this case, will replace the value of your Foreign Key to NULL instead of a CASCADE update or a CASCADE delete.
Just a thought, I'm not sure how your app works, but this will result in a lot of what we call "orphan records".
Happy coding!
-- CK