declare @xml xml
set @xml = '<root/>'
select @xml
declare @value varchar(10)
set @value = 'val1'
set @xml.modify('insert <item value="{sql:variable("@value")}" /> into (/root)[1]')
select @xml
set @value = 'val2'
set @xml.modify('replace value of (/root/item/@value)[1] with "val2"')
select @xml
set @value = 'val3'
set @xml.modify('replace value of (/root/item/@value)[1] with sql:variable("@value")')
select @xml